Food For Founders #55

Takeaways from the Center of Economic Studies on a Team’s Impact on Startup Success

I read this 30-page study and half a dozen pages of graphs to see if an idea is good enough to stand on its own, or is it all in the team who is executing it. 

If you want to read the paper for yourself, here is the link. I normally don’t get to far into these due to longer PDFs being really difficult to read (am I the only one whose eyes start crossing after 20 minutes??).

What really intrigued me about this piece is the fact that they were aiming to prove or disprove something that is core to KnowCap. Whether or not having access to expert operators can materially affect the outcome of a business idea.

Abstract takeaways

In reality, this piece is a study on whether the belief where VCs care more about the team than the actual ideas and product is actually true. Personally, I believe it is. I have seen what has happened when a really amazing team takes an okay idea and turns it into a rocket ship (I’ve also seen the reverse). 

When you are looking at spending a lot of time with a founding team, you have to analyze and weigh their ability (or perceived ability) to build a fairly large company. You have to know they can lead a team of hundreds or thousands, that they can whether regulatory and competitive storms when they inevitably begin blowing in their direction. 

At the end of the day, betting on the jockey and not the horse (as Gary Vaynerchuk would say) is the topic of discussion in this 30-page report. 

Findings

  1. "In this report they are not only including founders, they are including employees that worked within the business during the first year of business.”

This is an interesting take because it deals a little bit with vision-casting and recruiting prowess of the founders to build an amazing early team and not just survive off the talents of the founding/executive team. 

Want to read more?

Food For Founders #54

F3 is a FREE weekly newsletter where we find the best concepts on the internet that will move the needle in your business.

Vulnerability time.

One area that I am by far the weakest is by anticipating human nature. It’s that thing that in our household, we refer to as a serious blindspot. I project my approach onto everything and everyone I encounter and have to reel back from there. It usually ends up with a lot of damaged relationships along the way, but it’s a work in progress.

This happened in how I designed KnowCap. I always felt if I had a team of experts around me to help fill in gaps where I wasn’t absolutely excellent in, I could build multiple very large companies. In a sense, KnowCap is what I would have loved to have 2-10 years ago (I know I’ve been starting companies for a decade now crazy!!!).

I knew that I would be on the ball every day. I would respond in 1 hour or less because I knew I had more to lose and the slower I responded, the slower my team of experts would work.

This is where my weak point reared its ugly head. I was projecting how I would use KnowCap into how we structured things. Processes woulnd’t be needed, every founder would come in and trust the experts, move as quickly as possible, learn as quickly as we could build. The KnowCap team would focus on what they do best and create a repeatable way of executing on that skill.

That is not what happened.

Speed exposes the cracks.

I’ve always heard that speed can expose a lot of issues and its up to the founder to determine the difference between a critical issue and an annoying one.

There were a couple of critical issues that happened with KnowCap. Internally, our team simply wasn’t talking. The fact they had skin in the game didn’t solve it. In my mind (again my weakest point) I assumed people would put forth their most effective and efficient efforts to build successful companies…they are working for equity after all.

This isn’t what happened. So we had to build lots of structure around timelines, project management, documentation, and handoff processes. It’s allowed us to interact with founders with a lot more certainty, but there’s a long way to go.

On the founder's side, it was a mess. We needed something or someone to get everyone in alignment. We tried creating a founder liaison role to help the miscommunications and slow-moving pace…the projects moved slower, the founders were frustrated, the KnowCap team members were bailing because of how failed the structure seemed. This didn’t help.

Managed Choas vs. Breaking the Model.

I’ve always heard that unless you feel like your business is breaking, you may not be growing fast enough. I don’t necessarily agree with this, however, with the feedback we were receiving from all sides…our model was breaking. We needed to get it back on track. Back towards managed chaos.

In reality, I abhor the feeling of herding cats (I’m not a people person remember??), but I knew that would be a step up from what we were currently going through. So we decided to hamper down. Recruit someone who knew processes backward and forwards as the former director of design at Moo.com.

We then recruited someone with an extensive business intelligence and analysis background across large retail institutions. And now interviewing for associate product managers who have a background in process building and project management.

We also implemented a rule. Every single founder would agree to our founder code of conduct. You guessed it…we designed it after the way we all had hoped founders would treat our investment model. Eager to move quickly. Quick decision making. Respect the experts.


Founder Code of Conduct.

We created something that I hadn’t seen in our realm of accelerators/VCs/startup studios/incubators. We wanted to make sure that we weren’t bringing in the wrong people. We also wanted to be confident that if we needed to kill an investment….we could without any guilt.

The founder code of conduct is akin to a manual for how founders should process how we invest in companies. Highly dependent on the founder’s ambition, vision, focus, and drive to succeed.

We knew we couldn’t bring on anyone who wasn’t going to take it seriously. We also knew that a kiss of death would be an entrepreneur that we have to train to be an entrepreneur. They need to already come in with this skill.

Here is the outline of our Founder Code of Conduct. We believe more and more organizations like ours will adopt a document like this to manage expectations and provide guidelines for founders who have never been in a program as unique as KnowCap’s.

Outline

  • KnowCap is an investor - we require the same treatment as an investor, we are not partners and founders are not clients

  • Timeliness is key - If a founder delays, it delays their progress. Speed is what we aim for and we can’t promise that the full-value will be received if we are slowed down.

  • Always be learning - founders need to learn as fast as we’re helping. If our design team says something they don’t know, they should spend the next few hours getting very familiar. We believe 10-20 hours per week of learning is a good number to aim for in order to get the best our of our programs.

  • Our expertise is our value add - founders who don’t trust our experts, will not receive the full value of our programs. If they don’t trust us (who have an incentive to help them become as successful as possible) they won’t trust new team members or new investors. Not a good fit for us.

  • Be coachable - founders who cannot recognize that they don’t know what they don’t know will not find our program very valuable. We will contradict them a lot and they will need to know where they are weak and where they are strong.

  • Be responsive - if a founder isn’t responding to emails in 12 hours or less, do they really want it? We have to be sure that when we introduce them to investors, customers, partners that they are committed to build a company worthy of those introductions. Focus and responsiveness have a lot to do with that.

  • Adherence to our tech stack - We’ve run into too many issues with this. In order to build at the speed, we are capable of, we needed to dictate the tech stack we use otherwise we would spend too much time with the founders convincing them of our way of building products. Otherwise, we look slow, timeliness is delayed by weeks/months, and founders aren’t focused on building out their company…they’re focused on the tech stack.

Conclusion.

We are always learning new things. That’s part of what makes this interesting, but also very hard. We are dealing with cities, corporations, founders, experts, and investors all at the same time. This requires speed and constant iteration based on what’s working and not working.

It’s also required me to admit I was wrong multiple times a day because at the rate we’re building, a lot of decisions made just a month ago are being invalidated with edge use cases and new information.

Iterating is a difficult process as it requires humility and confidence. Confidence to know that your vision may be right, humility because the way you were executing on it may have been incredibly stupid.

Keep iterating. Keep pushing. Keep changing the world.

Food For Founders #53

F3 is a FREE weekly newsletter where we find the best concepts on the internet that will move the needle in your business.

Founder Education 

This section is meant to help you grow as a leader, manager, or entrepreneur.

How Startups Write Actionable Investor Update Emails

We always try to help founders have the best chance of raising funding. It doesn’t just start when you send an investor a deck, it’s also everything that happens before and after. Do you have the right metrics?

Put forth the wrong ones and they’ll wonder if they know your business better than you do. Do you have have the correct go to market strategy? Have the wrong one and they may think that you aren’t strategic enough to generate the return needed to sustain their fund. 

There are a lot of nuances that go into pitching an investor, but there are also a few things that go into how to manage your investors after they sign up to fund your company.

One piece that can come in handy is utilizing investor update emails. By keeping your investors involved in your progress and requests for help they are more likely to follow on in your next round of funding or serve as key referrals into your future investors. They can also help you recruit top talent, help you with strategic partnerships with larger companies, and mentor you on how to grow your company. 

There is a lot of benefits to writing investor emails and its why every future KnowCap company will be required to send monthly investor update emails. 1) To build the muscle of sending them out on a regular cadence 2) So that when we meet investors across the country, we have a very clear picture on the progress one of our portfolio companies have made in the palm of our hands

I believe this piece does an amazing job of walking a founder through the steps to construct one that will pay dividends for the founders. When your investors have a direct line of sight into the metrics, successes, and failures of their company they are much more likely to help or vouch, for you later on.

Business Strategy 

This section is designed to help you improve your skills as a strategist and tactician.

How we kickstarted our startup in 6 weeks

I really think this article does a little simplification of what it takes to launch a startup - mostly because there are so many ways that it can go wrong in just two weeks from the article’s publishing date. However, the way that they validated their idea and then adjusted based on the feedback is where many founders skip a step. 

The only thing that matters at the earliest stages is to make sure that you focus on providing a solution to a problem that actually exists…and then determining if people will pay for that problem. If you have a solution to a problem they have, but they are comfortable cobbling together their own solution for free - probably not a very good problem that you are solving. 

The best ones that we see in the startup space are when businesses do deep customer discovery and find a problem that users don’t even realize that they hate solving without your product. 

Mental Snacks

This section was created to introduce ideas that may not related to starting a company, yet is important to your success as a founder.

Stop Chasing Opportunities 

My wife and I have weekly coffee dates where the agenda is to tell each other about our lives the past week and then what’s coming up for the next week.

We have done this weekly check-in since we got married 3 years ago and it’s one of my favorite times to of the week. With us both taking on a lot over the last few months (she just built a team of four from scratch and taking her mid-sized nonprofits fundraising efforts to another level as their director of development…yes she’s amazing) it’s come in handy with running KnowCap happenings by her. 

Now everything I tell her she says, does that tie into the three pieces you are focused on 1) Proving the model 2) Generating revenue 3) Fundraising. If my answer is neither she holds me accountable for my priorities. 

This ties in perfectly with this piece and there are a few quotes that I LOVE! As founders, we will have so many things vying for our attention and very few will actually move the needle for your business. There will be requests for speaking events, podcasts, articles, free panels, workshops, consulting, new partnerships, ancillary projects. They will seem amazing at first, but that’s the trap. 

I’ve fallen into it and what I was recently reminded of is that opportunities will come, but they get better when you execute. The meetings I have now are different than the ones I had a year ago. Now people pitch KnowCap to see if we want to partner and it all came when we began to just focus on executing the model. With that said, here are those three awesome quotes I mentioned earlier….

" So it’s not about how many opportunities you have, it’s about how many opportunities you eliminate from your life.” 

"It’s more practical to chase skills, and PREPARE for opportunities."

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” - Thomas Edison

Around The Startup Ecosystem

This section was built to update you on important events, opinions, or pieces happening in the world of startups.

The new seed landscape

I wanted to include this piece in this newsletter because when we are pitched by entrepreneurs, we try to ask them what do they want to raise funding at in their first institutional round (it helps me us know how to structure their documents). Usually, they have no framework of what’s realistic. It may be due to their stage, their metrics, their location, their industry, or simply their demographic. 

That said I always want to include pieces that give a little more transparency into the mind of what it takes to raise that first round of funding. Usually, these pieces are by other VCs so take it with a grain of salt as it is their perspective on the fundraising landscape.

Food For Founders #52

F3 is a FREE weekly newsletter where we find the best concepts on the internet that will move the needle in your business.

Founder Education 

This section is meant to help you grow as a leader, manager, or entrepreneur.

How much information should you include in your pitch deck email

I am a huge fan of taking from other people’s experiences and then building models based on common denominators. In that regard, this piece by Brett Fox is gold. 

I still hate sending out pitch decks. In general, I don’t like seeking investment funding period. It’s exclusive. It aims to be transparent and meritocracy…but ends up being anything but. 

Brett really taps into the psyche of a founder. We feel like we’ll only have one shot to make a good impression and stand out, so we want to impress with our knowledge and our concept…in reality, this is the wrong way to go about it. 

Another thing he points out is people not being able to get to the core of their pitch immediately. If you are pitching a VC cold you need to make sure not only does your deck stand out, but that the important information is front and center. 

The meat of your pitch needs to be front and center and the deck should make someone want to learn more. It should not make someone want to invest (because they won’t). 

One thing that really changed for us was to be able to align our deck with our story. We knew if we did that really well then it would no longer be about what was in the deck, but whether we were a good fit for the investor period. This is a good place for a founder to be because it removes the aspect of “chance."

Business Strategy 

This section is designed to help you improve your skills as a strategist and tactician.

The LightSpeed SaaS Operating Model

Learning from experts is something I always try to impose on founders. It takes a lot of humility to realize that you aren’t even the third smartest person in a lot of rooms (if you are - find a new room). Once you enter that space it’s actually very freeing because you treat every interaction as an opportunity to learn. 

To me, learning is just another way of saying using other people’s failures to avoid making your own.

This SaaS Operating Model is exactly that. It’s experts in a field of investing and growing SaaS startups bringing their data and insights back and posting them for FREE.

 All it takes is a few hours of pouring through the spreadsheet and dissecting this piece to glean some really powerful anecdotes. 

Mental Snacks

This section was created to introduce ideas that may not related to starting a company, yet is important to your success as a founder.

Consistency is Key

Each year as a new year begins there is only one item on my resolutions list - get 1% better every day. 

When I was in school I learned something that has helped shape my professional life and that lesson was that work and effort compounds. If you do something consistently for decades, you have no choice but to achieve your goals. 

Even the great Herb Keller says that the reason people don’t succeed is that they are not able to deal with the monotony of success. This is a real thing. It’s the antithesis of the “shining” object syndrome that most entrepreneurs I know suffer from.  

That’s why I wanted to include this article. Darius is someone that always falls into my reading list (half of the time I don’t know it’s him until I dig a little deeper - I know his writing from anywhere.

In this piece, he depicts a great mental model for analyzing situations that have a lot of external factors. The entire piece I was saying “good point” to myself and thought it would be a great reminder that you can only control 1) Desire 2) Attitude 3) Judgements 4) Determination.

Around The Startup Ecosystem

This section was built to update you on important events, opinions, or pieces happening in the world of startups.

The Master List of U.S. Micro-VCs

If you aren’t in our ecosystems and planning working with our investor relations team, this entire newsletter is basically geared to helping you raise funding…this piece is no different. 

With more and more founders investing in founders, and new investment models popping up (like my firm KnowCap),  there has never been more of a seller’s market from the founder's perspective. 

Raising funding is still really really hard, but a lot easier than it was just 7-8 years ago. With the continuing economic boom, more money going into venture, positive legislation like the JOBS act, and all-around increase of startup investing…it’s never been easier to raise venture capital to scale your company into something more. 

It’s also never been harder to stand out of the crowd. If you’re looking for a place to turn to find out who’s investing and what kind of companies they are looking for. 

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