The risk of the charismatic founder

I remember hearing about a company with an extremely charismatic CEO. The company wasn't doing well, but he was a compelling individual. He'd give a talk and the team couldn't help but believe in the vision. Investors believed too. Everyone got a jolt of energy. 

But, as soon as everyone got back in the trenches, people realized that none of the things the CEO said mattered. The company wasn't doing well. The tactics weren't working. And, the energy from his talk would fade quickly, like a crashing sugar high, because the content wasn't based in reality.  Everyone became demoralized.

I'm sure we've all heard, or experienced, that kind of story. 

The Spartans had a word for this kind of mental state, where a speaker or a moment can inspire a departure from reality. It creates “katelpsis,"  possession [1]. It may sound like a motivating force and for a moment, even a crashing company can feel great. 

The Spartans saw katelsis as a "derangement of senses," which is a dangerous mental state. It's was something to be avoided, since possessed, knee jerk decisions without reflections could be dangerous, especially in a battlefield. Calm minds and solid fundamentals would prevail, not a thoughtless frenzy.  (Your company should never be frantic)  


It’s not the charisma that’s unhelpful, it’s the motivation without enduring substance. It asks an audience for trust, since the substance isn’t there to back it up. That approach only works a few times, until that trust is lost and people become demoralized.  

I imagine two companies with the same progress. Maybe both have been struggling, building a product without traction. Yet, one team is driven by possession, the other is driven by a honesty, energy and a plan. The first one will energize momentarily and crash - the second team will problem solve and make progress. When I hear people pitch, I always think about what category they fall under.

[1] Great book, called Gates of Fire, about the battle of Thermopylae. It’s hard to evaluate the historical accuracy of these things, but I think the sentiment is something we can learn from. 

Don’t be the startup that accidentally runs out of money

A few years ago, I met a founder with only two months of runway left. In two months, his company would shut down because he didn’t have any cash to support it. He wanted to discuss whether he should start fundraising for his second round. That’s some scary shit. We should have had that talk when he had 6 months of runway left.

Here are the two scenarios you should never run into:
  • You don’t know how much runway you have left (i.e., you could run out of money in 1 month, 3 months or 9 months. Your startup death day is unclear)
  • You know your runway, have less than 6 months of cash and you’re not executing a plan to fix the situation.  

When you have less than 6 months of cash in the bank, what do you do? The options are pretty simple:

  1. Get profitable (increase revenue, decrease burn or do both)
  2. Raise more money
  3. Get acquired
  4. Get blindsided when you run out of money because you didn’t have enough time to execute on 1, 2, or 3.

I’d recommend hustling like crazy to do 1, 2, or 3. If you run out of money, at least you’ll have done everything under your control.

Running out of money should never happen because you didn’t leave yourself enough time to execute. When that happens to companies, it’s unnecessary and tragic. Who knows what would have happened if you had given yourself enough time?

The sense of startup self-preservation is an amazing thing. When runway is low, founders often execute better and focus more. But, the only way to trigger that self-preservation is to know well in advance that the end is coming and to put a plan in motion. That’s why it’s always important to track your runway and think of 6 months as a red line.

Don't let yourself be blindsided. And, if you have less than 6 months of runway, no plan and want to meet - please don’t mention it until I’m at least one beer in.

Validating potential investors

I remember meeting up with a new founder who was stressed about the fundraising process. Fundraising can certainly feel stressful, but I realized that most of the issues could have been solved by asking the right questions. When you’re less confused about the process, it makes the process more predictable.

Here are some questions I found helpful to ask when meeting investors:

1. What kind of companies do you invest in? 

If the investor focuses on biotech, it's unlikely she'll invest in your SaaS company. If you get a pass, you'll now know that it had nothing to do with you. 

2. Who else have you invested in? 

If she hasn't invested before, she may not be well suited to the ups and downs of startups.  The stress may make them want to become extremely involved; instead of being helpful, the investor may be harmful. There are few things I avoid more than having the wrong people permanently involved in the company.

3. How much do you normally invest? Is there a range? 

It helps you mentally map out your round. If everyone invests $10,000, it’ll take a long time to fill your $1m round. This also helps you determine if you are talking to enough investors.

If there is a range, you can always the take smaller amount if there is not enough room left in your round. 

4. How does your decision process work? 

If you understand the process, it’s less likely to feel like a jarring experience, since the investor will be doing what she said she would do. Even if she deviates, you will still know the general path. 

Angel investors often decide on the spot or will want to sleep on it. For VCs, it depends on the firm. Seed investments can be fast and often close in one meeting. Larger rounds are slower and often involve multiple partners. 

5. How much time do you spend with your portfolio companies?

It's helpful to know their expected involvement in advance, to see if an investor will be in the crowd, the ringside, or your corner.

You want to be careful of people who could distract you without adding value. 

6. How many boards are you on? (for VCs) 

This is important to know, because if the investor is currently sitting on a lot of boards, she may not be able to invest a lot of time in your company or may be unlikely to make an investment at all. It’s not necessarily a deal breaker, but just good to know.

7. Now that you know more about what we're doing, are there any other investors I should be talking to?

The investor might provide an intro or might not. Regardless, some great investors keep a low profile. Just knowing a name helps, since you can ask for an intro from someone else. 

These questions reframe the conversation from trying to get someone to part with their money (hard and potentially bad for your company) to finding out whether there is a fit (less hard, more helpful and more long term). Plus, by getting to know each other, this sets you up for a longer term relationship. So, it always perplexes me when I hear founders not ask questions. 

Let me know if I'm missing any. 

Investors and advisors: the crowd, the ringside, and your corner

I hear about investors or advisers as either 'helpful' or 'unhelpful'. I think that misses the nuance of the kind of people you need involved.

To get the support you need, it’s important to be deliberate about how you pull together this key group of people; the right individuals can have a significant impact on your outcome of your company.

Here are the categories, as I see them:

1. There's the crowd. These people will invest in your round. Some of them are incredibly accomplished people and it's an honor to have them involved. But, aside from the investor updates, you'll rarely stay in touch. That's completely normal; they might have even said they would be busy before they made the investment. Every financing round has investors that won't be very involved.

2. There's the ringside. These people have been in the game before. They have expertise - whether in user acquisition, product, sales or something else. They are helpful and you can reach out to them on a case by case basis. But, you don't want to ask too much or too often. They are busy people and not completely up to date on the nuance of what you're doing.

3. There are those in your corner. You can call them up a dozen times during your financing rounds. They reply to a Saturday night email in five minutes to talk about a time sensitive deal. They are up to date on where you are as a company; there is no background ramp up when you talk to them. That means they'll know what you've tried, what worked and what hasn't - so they can give up to date advice.

If it's not immediately obvious who's in your corner, it means you don't have someone there. Not every investor or adviser can be in your corner. That’s not even something you’d necessarily want; not everyone would fit.

A few years ago, I remember a late night, debating an investment offer. If we took it, it would close the round, but we had another offer coming in soon. Do we risk losing the first offer and wait for the second offer? I emailed our adviser and got an immediate reply. We talked it over and decided on an approach. We ended up raising twice as much money. That money allowed us to build HelloSign. He was in our corner. 

--

Thanks to Arram Sabeti and Abby Walla for reading versions of this.

Your company should never be frantic

A few years ago, I remember talking to someone on the team and saying that we had to grow faster; the status quo wasn’t working. He mentioned that to another person on the team. When I ran into that second person on the bus, he was really stressed. I inadvertently created stress about a problem, but didn't communicate a solution. Everyone could feel it, even though I only talked to one person. In retrospect, I was setting us up for frantic effort; we were about to approach the problem in an unstructured, un-prioritized way. That’s no way to solve a problem.

I've seen companies with determined effort and companies with frantic effort. There’s a huge difference.

Frantic effort is when you have so much to do, you are not sure why you're doing it or why it’s better than other things you could potentially do. You haven't taken the time to prioritize. Instead of focusing, you jump from one thing to the next, like you're chasing a trail of shiny objects. It's a nervous energy that starts at the top of the company and works it's way down. People are confused about the right path, so their solution is to just work more and harder toward goals and for reasons that are hard to articulate. The team works hard without understanding, reflection or vision. It's scary to be part of a frantic company. It's also exhausting and demoralizing.

Determined effort is when you know what you're doing and why you're doing it. You know exactly what you are building and its trade-offs. Even the things that you're not sure of are calculated bets. Everything you do produces more data towards the vision of the company. If you notice something isn’t working and need to change paths, it’s a conscious change. Determined effort doesn’t mean you’re locked in - it just means you make decisions with purpose and not out of anxiety.

Ironically, determined effort and frantic effort can take the exact same amount of time and effort, but not produce the same results. Determined effort lasts longer, is more focused, is less prone to burnout.

How do I know when someone has been at a frantic company? You can see it in their eyes when you interview them. They have the glossy, unfocused look that we all associate with burn out. There's also a kind of discontent about how their effort has been used. That company used up all their willpower going in many directions that no one fully understood.

As HelloSign is growing faster, we're hitting natural stress points. We don't always have enough people for what we're doing. Even when we decide to hire for a new role, it’s realistically a month or more before that person starts. Plus, every new person is another person to coordinate. Yet, whenever we feel any frantic energy building, it’s an indication we have to communicate more, prioritize more and have a clearer vision. That’s how we get determined effort.

Meeting with busy people

Soon after moving to San Francisco, I got a meeting with a great investor. I was new to the tech world and he was nice enough to make time to meet. He asked me a few times:

“How could I help?”
I started noticing a theme. A lot of other people that I met would ask that question as well.  Considering how high profile some of these people are, the generosity of time was really surprising. But, when I think about it more, while it’s true that they were willing to help, they were also asking: 
"Why did you ask me to meet?"
The why is important. These are extremely busy people. Many run their own companies or are investors, busy with their funds. They’re happy to meet, but want to meet for a specific reason. They don't have time to just hang out with everyone that reaches out. Here are some things to think about when you're getting a meeting:
1. Think about why you want to meet before getting an introduction.

2. Explain why you want to meet in the introduction. 

3. Create a list of questions you’d like to ask before the meeting. 

4. When you start the meeting, reaffirm why you asked to meet. 

5. Stay focused. There's an infinite number of things you could talk about; if you try to discuss it all, you'll both come away confused.

6. Know that building a good relationship is more important than any question you might ask. 

7. When you hit the allotted time, which is usually a half hour or an hour, say you want to be sensitive of their time and bring the meeting to a close. 
There's a great upside to using their time well: they’ll be willing to meet with you again. 

How to hustle and launch in 3 weeks: The FOBO Backstory

In 3 weeks, the founders of Yardsale built and launched the first version of FOBO (Free or Best Offer).  A lot of startups talk about launching fast and iterating, but sometimes you see a company doing it extremely well. Just watching this team execute, I felt like there were lessons worth writing about.

How FOBO works: everyone has something that you'd like to give away or sell, but don't have time to research and optimize price, deal with dozens of emails, and coordinate pickup, or ship the item, in the case of eBay. You post it on FOBO and they instantly price it (using a catelog of eBay historical sales) and they guarantee that your item will sell in 97 minutes.

My take: I have things I'd like to get rid of, but I'm too busy to post and negotiate for things on Craigslist. Some of the things are really valuable, so I'd love the option of at least making some money on it.

Here are the things that impressed me about their execution:

1) The founders built the first version 3 weeks. They didn't spend weeks debating color gradients. They know that gradients won't create product / market fit, so they're focused on the things that matter. In fact, they found out fast that many of their original assumptions were wrong (which is the case for most first versions of products), but since they built it in 3 weeks, they had plenty of time to iterate.

2) They forced every new feature to fit in a 2-day spec. So, they avoided long (and dangerous) development cycles. The version that you’re seeing launched on TechCrunch is version 262.

3) They didn’t launch with payments. They manually sent all payments via paypal.

4) They used old code whenever possible and built everyone on Parse. With no back end coding they just focused on user facing functionality. 

5) The founders did everything they can to make sure their initial users are happy. Ryan (one of the founders) listed his personal cell phone number in the app and all newsletters. When I reported a bug and then didn't reply, they contacted me several times, sometimes over text, until the bug was fixed. (He's a friend, so he has my number).  

5) It's a two sided marketplace and they're doing everything they can to seed the marketplace with buyers and sellers. The founders offered to come over and help me post things. They're also buying and selling products themselves.

6) They have a revenue model. In the event you sell something, they take 15%, which is completely reasonable. They're building a real business immediately into the product. I'm glad they're not telling users that they'll get paid on the credit card fees at volume. Ryan just told me that they’ve paid for rent with it several times over.

7) It's hard to put my finger on it, but there's something really creative and compelling about the product. It makes me think about how Twitter and Vine took off. I find myself checking FOBO daily to see what's available.

I think it can be valuable to write about companies after they're multi-million dollar companies, but sometimes, it's interesting to see how a team operates to get initial product market fit.

If you'd like to try it out, go to fobo.net

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10 Places to Source Investor Meetings

I met up with someone who had raised over five million dollars with almost zero effort. He sent off a few emails with the terms that he wanted and the investors agreed. The round was done. It was incredible to see. 

When you think it over, it makes sense. Over the years, this person has build a large network and significant credibility in Silicon Valley. He also made his previous investors a lot of money with a successful exit. He's a known commodity. 

For the rest of us, we need introductions. New founders could try to meet investors for months or even years and not make any progress raising a round. Here's a quick post on how to source introductions. These people spend their personal capital by making an introduction. They may say they're not comfortable doing it yet - so be gracious and keep building. 

Here's where you can source introductions: 

1. Advisors
They know your company better than anyone else. The kind of person you want as an advisor is also likely to be trusted by the startup ecosystem. Our advisors, Zach Coelious and Garry Tan, have been incredibly helpful. 

2. Founders who have raised previously
If you know people who have raised previously, they are a great source of introductions, since their investors have chosen to invest in them. Note that they spend their personal capital on you, so ask judiciously. 

3. Angel list 
I haven't used them, but I hear they can be helpful, especially if the team decides to promote you.

4. Accelerators
The people who run accelerators take an unknown commodity, you, and then put their reputation behind you. It's like having an advisor, but at scale. 

5. Current investors
As soon as someone invests, you can start asking for introductions. Investors often invest together as they trust each other's judgement.

6. Investors you have pitched, but who are on the fence
This is one that takes a little more nuance, since it's a negative signal to get an introduction from someone who's passed. You need to be reasonably confident that this isn't a likely pass and seems relatively likely they could become an investor. At the end of a meeting, you can ask, I appreciate the time you've taken to meet. Since you now know a lot about our company, who do you think could be especially helpful? Then, you can ask them for an introduction to those people. If you can turn 1 meeting into 3 more, you can quickly add more pitches to your funnel. As one piece of etiquette, you should always be willing to take money from someone who gives you an introduction. 

7. Inbound interest
If your company has been around for a while, you may have gotten to know investors casually. When you decide to raise, you can reach out to them. The great thing about these investors is that you already know them. There isn't the uncertainty of both raising money and meeting someone for the first time. 

8. Investors that passed previously
I especially like those investors who have passed and articulated why they passed. You can reach out to these people and explain your progress. This is yet another reason to handle rejection well (see "Treat investors well when fundraising").

9. "Cold" meetings and emails
This is in contrast to 'warm' introductions you get from other people. I've had less success with these, but you can get meetings this way. It's just time consuming, hard and unlikely you can get the volume of meetings you need to raise. 

10. Move to a tech hub
This one may sound controversial, but moving to a tech hub, like Silicon Valley, can significantly increase your chance of raising a round. There is a huge density of investors here. It's a lot harder to become part of this ecosystem when you're far away. It can be done - it’s just harder. 

For various reasons, some investors will choose not to invest in you. It may have nothing to do with you: perhaps they're at the end of their fund, in the middle of raising a new fund, or focusing on a specific investment category. That's why it's important to have enough conversations in the funnel, so some will convert.