I was asked recently to speak at an Imperial College Enterprise Lab event on whether, as an early stage VC, I thought successful entrepreneurs are grand visionaries or piecemeal tacticians.
The ability to summon a big, paradigm shifting vision is often touted as the edge that successful tech entrepreneurs have over mere mortals.
In a start-up, vision has many important roles to play. It can be the road map that enables the setting of goals which, in turn, enables the selection of strategies and tactics. Importantly, vision can be the glue that binds together a team. When you have half a dozen under-paid, under-fed folks crammed in a small room working 24/7 to simultaneously build a beta product and sign up customers for the yet to be finished beta product, it is vital to have a world dominating common purpose to cheer and defend.
PITFALLS OF A GRAND VISION
However, an entrepreneur’s journey is not linear. Far from it. At the early stages (particularly pre-Series A) there will be few dull days, rather most days will involve multiple and simultaneous existential crises. The entrepreneurs who succeed in this phase have an uncanny ability to duck and dive, wheel and deal. It may closing the first sale of a product that is not fully baked, taking big risks, making sacrifices to extend the runway, moving quickly to restructure the team when needed. These things can be uncomfortable, sometimes brutally uncomfortable.
At Beacon, we have met over 3,000 start-ups since we started in 2013. Clearly not all founders have the aptitude for leading start-ups. It can be a difficult thing to admit. Sometimes, a grand vision can stop us from recognising this. I thought I would share some of the hazards of a grand vision.
(1) A grand top down vision is only half way
Most founders start their pitch by framing a vision based on a pain point – the bigger, the better. For example: businesses all over the world rely on a piece of technology nearly 40 years old … called e-mail. Yet email is slow, unproductive, hampers collaboration, seems light years behind mobile chat messaging and other social media. Instead imagine a new product that will instantly organise all your emails, intelligently sift out important issues, generate action lists, automatically populate calendars, and more. Such a top down vision is compelling. The pain is clear. The addressable market could not be bigger.
In 2015, we saw quite a few start-ups with big visions for addressing this pain point. (Coincidentally, 2015 was also the year when VC activity peaked with record valuations and dry powder in private capital funds.) Whilst we were excited by the top down vision, none of the email start-ups had convincing answers to some basic bottom up questions:
- Who are the buyers?
The typical response was enterprises with X number of employees or X number of email accounts. And, assuming some reasonable conversion rates, we have line of sight to a X million business. An entirely logical approach.
But what about the other end of the telescope: the buyer must be (a) a real person (b) is motivated to buy the product, and (c) has a budget to spend. It is not obvious who this person is for a product that replaces or sits on top of email. Is it the CTO? Will the CTO care enough about a product whose ROI is hard to ascertain?
- Having identified the buyers, how will you get to the buyer?
The typical response was some optimised permutation of PPC, content, social, referral, partnerships.
But, basically, what is needed is (a) a list of buyers (the easier it is to obtain such a list, the better) and (b) the right people to make the approach. With the email product, even assuming leads are identified, have we identified a salesforce and how do they sell a product whose ROI is hard to measure and requires the breaking of a 30 year old habit?
So, a grand top down vision is important but it is equally important to think about things from the bottom up. Strip it down to the basics and imagine if and how the basics can be executed.
(2) Market validation
It can be so easy to be drawn in by big visions and start executing straightaway. Sadly, many founders burn time, cash and emotional capital with nowhere near enough validation.
With the tools available today, there is no excuse for just doing some desktop research or “I visited some cafes and asked some random people”. Some of the market research platforms (eg OnePulse) used by the likes of Unilever and PwC are available to start-ups to reach thousands of real people, of any demographic, to get opinions on any question in minutes.
There is also no excuse for not doing an exhaustive appraisal of the competitive landscape for your product. Founders must be clear where, why and how their start-up fits in. Find out as much as you can about the competitors and potential partners – how long have they been in business, how are they funded, market share, user reviews etc. These are not just the incumbents (whose product might be general and not as targeted) but also start-ups near and far.
Executing a grand vision requires a long runway. Most founders under-estimate the runway required. The immortal Airbnb took nearly three years to raise its Series A. They had 143 reservations in their first 12 months averaging £36 in fees, sold homemade breakfast cereal to make ends meet and had parted with 26% equity by the time they graduated from YC.
At the early stage, a start-up lives and dies by its ability to secure that next round of funding. To some extent, the grand vision must take a backseat and give way to interim milestones that will deliver the next round funding. To be a CEO at this stage is to be the Chief Cash Extraction Officer. This means staying in constant touch with providers of next stage funding and understanding the milestones they want to see. There is a caveat here: not all start-ups are suited to VC funding. Sometimes it can make perfect sense for a founder to not take VC funding and adopt a low growth strategy. It doesn’t mean that the vision is somehow inferior. It is just another way of getting to a viable business.
There is also a personal runway to consider. Founders must ask themselves how many months (more likely years) of poverty salary and zero holidays they can tolerate. Then double this number and see if the answer remains the same.
In the end, successful entrepreneurs are nimble operators who know that a grand vision is an enabler yet recognise it can be a hazardous masking agent!
Also published on Medium.