John Greathouse Hands-on startup advice for emerging entrepreneurs Thu, 28 Apr 2016 19:30:09 +0000 en-US hourly 1 9 Success Principles From A 40-Year Veteran Thu, 28 Apr 2016 19:30:09 +0000 A version of this article previously appeared on Forbes. After 28 years as a public-school teacher, Bob Wood reluctantly left the classroom and took the […]

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A version of this article previously appeared on Forbes.

After 28 years as a public-school teacher, Bob Wood reluctantly left the classroom and took the helm of his elementary school. During his 10-year tenure as Principal, his team was awarded the White House’s National Blue Ribbon, a distinction granted to the top 0.3% of all elementary schools nationwide. Under Bob’s leadership, his school was also named a Distinguished School by the California Department of Education, earning an unprecedented score of 10 out of 10.

As noted in You're Never Too Old (Or Too Successful) For A Mentor, Bob is my mentor and friend. Thus, I was honored when he agreed to share his insights regarding the fundamentals of success with my UC Santa Barbara entrepreneurial students.

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You can watch a 7-minute excerpt from Bob's talk here.

Bob Wood’s Nine Fundamentals of Success

Drawing upon his nearly 40-years as a public servant, Bob distilled his formula for leadership success into the following fundamentals.

  1. Communicate Authentic Core Values

Successful leaders must constantly communicate the core values which underlie their organization’s vision. In turn, the leader’s vision and actions must also be congruent with these values. If done effectively, these organizational values will become the foundation upon which the company’s corporate culture is maintained.

  1. Demand Customer Centricity

The challenges of a public school Principal are akin to that of a CEO, with the added handicap that it is nearly impossible to terminate poor performers. Like a CEO, Principals must collaborate and cajole their various stakeholders, which include teachers, parents, students, staff and administrators.

Bob successfully managed his constituents by never forgetting that his ultimate “customers” were the students he was serving. He resolved numerous conflicts by reminding his stakeholders of their shared commitment to provide the students’ with an optimal education. Startup CEOs can likewise diffuse internal dissention by refocusing their team’s attention on their customers, rather than their colleagues.

  1. Display Total Commitment

Effective leaders demonstrate with their words and their actions that they are “all in.” Without compromise, they apply all of their efforts to the organization’s success and they demand a similar level of dedication from their key team members.

  1. Be Of Service

Successful leaders do not give orders. Instead, they help those around them attain their goals, knowing that this approach will ultimately lead to the team’s overall success. As Bob notes, “I was in service to everyone… if a (light) bulb needed changing in a classroom…I got a ladder and changed it.”

  1. Be Transparent

Acting with transparency goes beyond giving your stakeholders visibility into the decision making process. In Bob’s words, “You have to be who you are on the inside and on the outside. “You have to be on the inside who you are on the outside. Everything has to be congruent. What you say and what you do has to fit who you are it. You can’t fake it.”

  1. Create A Path

Great leaders create a pathway devoid of obstacles that could impede their team’s progress. This path guides the organization and keeps it moving in an optimal direction. Per Bob, “When things are static, that’s when things start to fail. I created a wake (for my team to ride.)” Channeling Daoist philosophers, Bob implored my students, “Whatever you do, don’t wobble.”

  1. Borrow Best Practices

Bob also reminded the students of Picasso’s definition of a great artist, “Good artists borrow, great artists steal.” Stellar leaders create a culture which encourages employees to experiment and seek a “better way,” rather than dogmatically adhering to solutions that worked in the past.

  1. Hire Well

Recruiting the right team members is a leader’s most important responsibility. As Bob notes, “Hire people who reflect the (organization’s) core values and who can grow.” This often requires you to “subsume your ego” and hire individuals who are more talented than yourself.

At a startup, shared values and vision are cornerstones of an effective strategic plan. If your team does not internalize these principles, the lack of accord will guarantee your venture’s failure. Harmony is easier to maintain once you hire people with the right aptitude and the right attitude.

  1. Don’t Hold The Bus

No matter how carefully you recruit your team, some people will be unable to evolve as your company grows and addresses new challenges. As Bob notes, although it is painful, successful leaders must “…leave some people behind.”

It is never easy to sever ties with an employee, even those which are not excelling. However, successful organizations seldom have the luxury to throttle back their growth to accommodate struggling employees.

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Avoid Hiring Victims – Look For These 5 Red Flags Thu, 14 Apr 2016 12:00:26 +0000 A version of this article previously appeared in Forbes. We’ve all met them. The world’s out to get them. Every boss, coworker and subordinate is […]

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A version of this article previously appeared in Forbes.

We’ve all met them. The world’s out to get them. Every boss, coworker and subordinate is scheming to assure their demise. Setbacks are never their fault. They are a victim.

Victims are bad enough in our personal lives, but they can be especially disastrous at a startup because a small company’s culture can be disproportionately poisoned by a single bad hire.

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Blame Game

“I am not a victim of emotional conflicts. I am human.”

American Actress, Marilyn Monroe

Some people are quite happy being unhappy. Marriage counselors advise young lovers to never marry someone with the intent of changing them. Follow this advice when recruiting.

Throughout their lives (personal, professional and otherwise), such folks are unable to internalize responsibility for their actions. Every time something goes wrong in their careers, it is always someone else’s ‘fault’, invariably someone who was ‘out to get them’.

Clearly, it is possible for anyone to occasionally become embroiled in a bad employment situation. Nearly everyone at some point in their professional career has been treated poorly in some way. However, if a candidate’s repeatedly negative comments make it clear that such ‘mistreatment’ is a recurring theme throughout their careers; the warning bells should sound and you should quickly cut bait. A normal person is occasionally slighted by their employer. Victims perpetually perceive such slights.

In such cases, the person either repeatedly exercised bad judgment that led them to accept jobs in unhealthy environments or (more likely) they lack the self-awareness to accept and share the responsibility for their career setbacks. Either way, you do not want their bad luck / bad judgment to taint your team.

Self-identified victims are fairly easily to identify during the recruitment process, if you are attuned to the signs.

  • Externalize Failure – Healthy startups have a culture of accountability. Victims cannot be held accountable, because it is never their fault. There is always some other factor responsible for their failures. This mentality limits their ability to learn from their mistakes and fosters a culture of finger pointing and blame.

Effective employees internalize their failures and setbacks. They honesty assess what went wrong in order to avoid similar mistakes in the future. For instance, if a sale is lost to a competitor, self-aware employees examine what they could have done differently during the sales process, rather than deriding the lost customer as “stupid” or alleging that a competitor beat them using nefarious tactics.

Red Flags: “They never gave me the resources I needed to succeed.” Or “My team was weak. I could never hire good people because my boss wasn’t willing to pay market salaries.” “The Founders couldn’t raise the capital I needed to execute my strategic plans.”

  • Single-handed Success – To the victim, success does not have “one hundred fathers.” Rather, it is the result of their intellect and hard work.

Victims overvalue their contributions and exaggerate the degree of their involvement in successful initiatives. Few successes are achieved by just one person. Self-aware candidates freely acknowledge the contributions of their teammates, bosses and other stakeholders.

Red Flags: Frequent use of “I and Me” instead of “Us and We” “I generated 53% of the company’s sales.” “My deals kept the company afloat.”

  • Them & They – Victims describe their past coworkers as if they were never a member of the organization, using pronouns such as, “they” and “them.”

Red Flags: “I tried to tell them that their target market didn’t make sense, but they wouldn’t listen to me.”

  • Everyone Is Clueless – Victims are the sole source of wisdom in their universe. Co-workers are clueless because they fail to appreciate the victim’s brilliance.

Red Flags: “My boss didn’t know what she was doing. She was totally clueless.” “The CEO and the investors didn’t have a clue, despite my repeated warnings that their strategy wouldn’t work.” “Marketing couldn’t generate decent leads and their collateral materials were terrible.”

  • Past Is Prologue – Perpetual victims often seek retribution for their imagined injustices through third parties, such as government agencies and the courts. Fortunately, the typical victim’s lack of self-awareness makes it relatively easy to determine if they previously brought an action against any of their former employers. Just ask them.

The government and courts play an important role in balancing worker and employer rights. Thus, the simple fact that a candidate has previously been embroiled in a labor issue shouldn’t de facto disqualify them from further consideration. In fact, it is illegal to not offer someone employment solely on the basis of a prior employment lawsuit.

Understand if seeking retribution is a pattern of behavior or a one-time, justified action. Many such instances will be subject to confidentiality agreements. Fortunately, you don’t need to know the details of such disputes to appreciate the spirit in which they were initiated.

Red Flags: Understand the general facts behind any prior arbitration, governmental or legal dispute in which the candidate has been embroiled.

Victims Love Company

“If misery loves company, misery has company enough.”

American Author, Henry David Thoreau

Perpetually unhappy people are poisonous to your culture. If left unchecked, their vitriol can lead to an “us versus them” divide that will impact your organization’s productivity and morale.

You may feel empathy when interviewing a victim, but never allow your emotions to result in a bad hire. Once a victim, always a victim. No matter how much support or praise you heap on them, you are not going to change them.

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How Can You Tell If Someone Truly Believes In Your Startup? Mon, 04 Apr 2016 12:00:41 +0000 A version of this article previously appeared Forbes. When entrepreneurs describe their venture, they are often met with encouraging words, such as: “Great idea. I […]

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A version of this article previously appeared Forbes.

When entrepreneurs describe their venture, they are often met with encouraging words, such as: “Great idea. I wish I had thought of that.”

This propensity for people to be polite when you discuss your startup can make it difficult to determine who really believes in your opportunity and who is just being nice. Fortunately, you can separate the polite from the committed by issuing the Blondin test.

Each generation, a few magnetic personalities emerge and generate a mania of public interest. During the mid-19th Century it was Jean Francois Gravelot, who wisely abandoned his given name and dubbed himself The Great Blondin. He was a true rock star of his day.

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We Believe Blondin, We Believe

On June 30, 1859, at the height of his fame, Blondin stood before a crowd of tens of thousands of people at Niagara Falls. He had begun his Niagara show by crossing the Falls on a tightrope three inches in diameter. Although the cable spanned 1,100-foot and was 160 feet above the raging waters, the trek was fairly pedestrian for a man of his skills. Always the showman, he nonetheless choreographed a few wobbles and slips in his initial crossing in order to heighten the drama.

He then addressed the crowd, asking them if they believed he could cross the Falls blindfolded. The crowd predictably cheered, "Yes, yes. We believe, we believe, we believe!" Much to their delight, Blondin donned a blindfold and made a roundtrip across the tightrope.

He then asked the crowd, "Do you believe I can cross pushing a wheelbarrow?"  Again the crowd riotously chanted, "We believe, we believe, we believe!"

Blondin successfully crossed the Falls pushing a wheelbarrow. Blondin then whipped the crowed into a frenzy before shouting, “Do you believe that I can cross with a man on my back?” Again the crowd hysterically shouted back, “We believe, we believe, we believe!"

Blondin smiled broadly and shouted back to the cheering throng, “It is great that you believe in me. Now who wants to get on my back?"

Silence… No one in the entire crowd of revelers, which had moments before shouted, “We believe, we believe” volunteered to join Blondin on his trip across the rope. They clearly did not really believe.

You will meet Blondin’s crowd over and over as you plan and execute your venture. Friends, family and disinterested parties will emphatically tell you, “We believe!” whenever you tell them about your wacky entrepreneurial plans. With friends and family, this sort of superficial support is expected. However, when you are attempting to build a team of employees, investors, customers and partners, you cannot afford such placation.

When a potential stakeholder, pull the Blondin Test. Make them prove their belief by getting on your back as you step onto the proverbial entrepreneurial tightrope.

One way for a supplier or strategic partner to prove their belief is to accept equity in lieu of cash. With early employees, you might ask them to accept an outsize amount of equity in lieu of cash compensation. If they believe, they will value your stock more than wages.

If the potential stakeholders really believe in you, your team and your startup’s prospects, they will get on your back and trust that you will either succeed or fail together.

Let’s Do This Together

What happened after Blondin silenced the crowd by challenging their belief? Did a drunken fool stumble from the throngs and take Blondin up on his offer of a free ride over the Falls?

No such fool, drunk or otherwise, emerged from the crowd. Instead, Blondin's manager, Harry Colcord, climbed aboard Blondin’s back and the two men successfully made the journey without mishap.

Why did Colcord make the perilous trip? He really believed. However, his was not blind faith. Colcord was confident in Blondin’s capabilities because he was privy to Blodin’s rigorous practice regime. Through his actions, not his words, Blondin had earned Colcord’s trust.

Keep this important distinction in mind when you deploy the Blondin Test. If someone jumps on your back without just cause, they may just as quickly jump off with the first wobble. You owe all your stakeholders proof that their belief is justified. Informed faith, based upon mutual respect, is the solid foundation upon which should establish your stakeholder relationships.

Entrepreneurial leaders must instill an absolute belief in their startups among all their stakeholders. The Blondin Test is a great way to assess whether or not someone truly believes, and thus whether or not you can count on them to lend you meaningful support when the startup tightrope starts to shimmy and shake. In such cases, do not hesitate to ask them to get on your back and prove their belief in you.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.

Image credit: AP Photo/John Froschauer

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Student-Founded Fantasy Pollster Is Hoping To Pick The Next President Fri, 25 Mar 2016 00:10:24 +0000 A version of this article previously appeared Forbes. Fanstasy sports sites DraftKings’ and FanDuel’s popularity has spurred a new-breed of political betting sites. Unlike sites […]

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A version of this article previously appeared Forbes.

Fanstasy sports sites DraftKings’ and FanDuel’s popularity has spurred a new-breed of political betting sites. Unlike sites of the past that were deemed illegal, the current crop of election sites appear to well positioned to exploit the unprecedented focus Americans are applying to the 2016 election cycle.

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Fantasy Pollster

As discussed in Mini-ventures Build Entrepreneurial Muscle, I am an advocate of students starting side businesses while in college. I believe that the lessons learned, albeit on a small scale, have broad applicability to full-time ventures.

Thus, I was pleased when I learned that one of my students recently launched Fantasy Pollster. Although the startup is still nascent, it has the potential to grow rapidly, as it rides the momentum of one of the most contentious and closely watched elections of the past several decades. The following is an excerpt of our conversation.

John Greathouse: How did you and your Co-Founder Brent Kirkland get started?

Liam Cardenas: After doing a hackathon at Citrix, we realized that we had a similar vision. Shortly thereafter, we began developing apps and websites out of Brent’s garage. Late last year, we had the idea for Fantasy Pollster and have been working on it ever since.

Greathouse: You and Brent are currently third and fourth year Computer Science majors at UC Santa Barbara. How has the entrepreneurial program impacted you? Have you applied specific lessons that you learned in the classroom?

Cardenas: The entrepreneurial program is excellent! We’ve been applying a number of lessons learned so far. For instance, in the High Tech Sales class, we discussed the necessity of tracking ad performance. Since we have released our product, and are now looking to acquire new users, this has proven to be extremely valuable for getting a high return from our advertising expenditures.

Greathouse: You guys could have worked on a variety of ideas. What inspired you to focus your efforts on Fantasy Pollster?

Cardenas: As avid followers of politics, we wanted to create something that would have the predictive powers of old-time prediction markets, such as Intrade. After experiencing the thrill of daily fantasy sports, we realized that creating a fantasy site dedicated to political polling would provide a prediction market that is not only legal, but also much more fun and exciting than those before it.

Greathouse: You mentioned Intrade, which was shut down by the government in 2012. What mistakes did they make that you are avoiding?

Cardenas: Their approach was very different than ours. They created a futures exchange in which the contracts were based upon the outcome of political events. Once regulators started cracking down on the financial industry, they were no longer allowed to accept money from persons residing within the United States.

We, on the other hand, operate as a fantasy sports company, similar to DraftKings and FanDuel. Since we are not a futures exchange, we are not subject to the same financial regulations that forced Intrade to shut down. Although we have our own set of legal rules and regulations, we are allowed to operate nationally with restrictions in only a few states.

Greathouse: So the goal of Fantasy Pollster is to use the wisdom of the crowd to provide accurate predictions for political elections?

Cardenas: Yes, that is certainly one of our goals. However, we also want to make politics more engaging. The incentive for a voter to be well-informed is currently very low. It takes hours to research, yet the chance of an individual vote making a difference is practically zero. This is where our site comes in. If people are heavily invested in the outcome of an election, they will be more inclined to read the news and become politically active. Let’s face it, many people are more likely to research the features of their next smartphone than they are to research the positions of the presidential frontrunner. We want to give political research the same incentives as market research.

Greathouse: That sounds nice, but do you have any evidence to support the idea that people will be become more politically engaged after wagering on the outcome?

Cardenas: Right now we are trying to prove the concept. However, The Daily Show seems to think it will work. Roy Wood Jr., a correspondent on the show, did an excellent piece about election betting, and how it would increase political participation without the negative externalities associated with other types of gambling.

Greathouse: But I thought Fantasy Pollster wasn’t a gambling website?

Cardenas: Well, it isn’t. As I alluded to earlier, we are legally a “fantasy sports company.” While drafting the Unlawful Internet Gambling Enforcement Act of 2006, federal lawmakers intentionally carved out an exception for businesses like ours. Although this exception has been around for a while, we are the first people to apply it towards political elections.

In order to meet this exception, there are certain guidelines that make our games slightly different from those of traditional gambling websites. This is why we do not run into any of the legal issues faced by the gentleman in the Daily Show piece.

Greathouse: How difficult would it be for an existing site to change their designation? Do you think your real competition will come from new sites or existing ones like PredictIt?

Cardenas: PredictIt took the same legal approach as Intrade, except they obtained a letter of “No Action” from the CFTC. This significantly restricts what they can do. If they were to reclassify themselves as a fantasy sports company, they would essentially be starting from scratch. Since we are not bound by the same regulations, we can make games that are more fun, nuanced, and feature rich than they can (create).

We welcome competition from new sites, as it pushes us to create an even better product. Ultimately, we aim to generate accurate prediction data, increase political participation, and provide an entertaining experience for our users.

Greathouse: So, what is the current state of Fantasy Pollster? And where are you planning to go with it?

Cardenas: During the first week of March, we made our first official release. Our games are currently based on the outcomes of the Democratic and Republican primary elections. In the short term, we plan on releasing new types of games with more social features, such as playing with friends. In the long term, we will continue to innovate in the legal prediction market space, shifting our focus from the primaries, to the November elections.

Greathouse: Liam, congratulations to you for launching a real business while in school. I strongly encourage my students to take the plunge and start mini-businesses while they are in college. I am sure you will learn a great deal and you may end up creating a job for yourself upon graduation. Well done.

Cardenas: Thank you for the opportunity to spread the word about our startup.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.

Image credit: Scott Olson/Getty Images

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Car Door Slam Or Spare Tire? Should Startups Build For Buyers Or Users? Wed, 16 Mar 2016 12:00:17 +0000 A version of this article previously appeared Forbes. Car companies spend a significant amount of money on superficial design features, including the timbre of the […]

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A version of this article previously appeared Forbes.

Car companies spend a significant amount of money on superficial design features, including the timbre of the sound emitted when a car door is shut. Why? Because many consumers value design features over those which impact performance.

Even less time is spent on developing the aspects of a car that become evident long after the purchase is completed. For instance, have you tried to use a car jack lately, let alone the toy-like spare tires included in many cars?

These “hidden” features seldom cross a consumer’s mind at the time of purchase and thus do not impact the buying decision. However, they clearly have a long term impact on the customer’s overall satisfaction and thus their propensity to purchase additional products in the future.

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Build For Buyers Or Users?

Startups do not always have the luxury to optimize their product for both buyers and users. Choices must often be made between features that entice buyers to make a purchase and design elements that enhance the product’s ease of use.

I learned the hard way that during a startup’s early days, entrepreneurs should give slightly greater emphasis on developing buyer features, in order to reduce the friction of the sales cycle.

When Expercity (creator of GoToMeeting, acquired by Citrix) was competing with Webex in the early days of screen sharing, Webex did something brilliant. In the early 2000’s, SaaS was a nascent concept and most companies were reticent to rent software. In addition to not understanding the pricing model, most of the techies who controlled the purchasing decision believed that software that resided outside of their firewalls was not secure.

Users, on the other hand, immediately saw the benefits of SaaS. They appreciated that the software could be accessed from anywhere and that it was updated weekly. Unfortunately, most companies at that time did not allow software users to initiate enterprise software purchasing decisions. Thus, we were forced to optimize the features important to the buyers along with those valued by our users.

Webex took a creative product development path, while we acted conventionally, attempting to educate the engineer gatekeepers and assure them that GoToMyPC and GoToMeeting were safe.

Rather than balking at customers’ requests to “put a server behind my firewall,” Webex readily complied by shipping a box to their customers that did little more than turn their SaaS off and on. Even though the functionality of the dumb server was negligible, the big red OFF button on WebEx’s servers allowed the engineers to feel that they were in control.

I implored my development team to imitate WebEx’s strategy, but I could not convince my engineers to build a similar on/off box. Instead, we tried to sell our benefits directly to our potential users, rather than satisfying the needs of our buyers. Although we eventually created one of the world’s largest SaaS businesses, we could have accelerated our growth if we had given our engineer buyers the perceived control they desired.

Car Door Slam Features

The next time you review your product roadmap, do not discard features out of hand just because they do not enhance the user’s experience. Such product improvements must also be viewed through the eyes of the buyer. If they will accelerate the velocity of your market penetration, judiciously add them to your roadmap – your salespeople (and investors) will thank you.

Follow John’s startup-oriented Twitter feed here: @johngreathouse. You can also check out his startup advice blog HERE.

Image: MONEY SHARMA/AFP/Getty Images

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Mini-ventures Build Entrepreneurial Muscle (And Can Lead To Big Businesses) Wed, 09 Mar 2016 22:48:23 +0000   A version of this article previously appeared Forbes. Entrepreneurs see the world like a cash booth from a 1950’s game show. On such shows, winners […]

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A version of this article previously appeared Forbes.

Entrepreneurs see the world like a cash booth from a 1950’s game show. On such shows, winners were placed in glass booth filled with money. Once the timer was started, a fan blew the money about and the contestant had a few seconds to grab all the cash they could hold onto.

Once you begin seeing the world with the eyes of an entrepreneur, you realize that money-making opportunities are all around you. I encourage my UC Santa Barbara students to launch mini-ventures while in school so they will begin to see the opportunities that surround them. Along the way, they grab some cash while stressing their entrepreneurial muscles.

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Once the Ball Starts Bouncing, You Never Know Where It Will Stop

The best advice in Guy Kawasaki’s The Art Of The Start is on page 9, where he states, “Get Going.” As Guy points out, most ventures morph over time to accommodate market realities. As such, the direction you initially point your venture will likely change over time. However, if you don’t start, you can only be assured of one thing – you’ll never control your own destiny.

A list of clever ventures that can be started by college students is included in this article. Three additional examples of mini-ventures carried out by me and my fellow Wharton classmates are described below.

Note: I am not purporting that these are particularly amazing or unique ideas. They merely serve to illustrate how easily entrepreneurial students can turn pedestrian opportunities into profitable, small ventures.

Fashion Show

Two Wharton students needed new suits for the dreaded MBA interview season. Rather than schlep downtown and pay retail, they went to one of the most expensive tailors in Philadelphia and offered to host a fashion show at Wharton, featuring the tailor’s suits, in exchange for two free suits each.

The fashion show was a huge success. The students were given valuable dress for success tips, the tailor sold a significant number of suits and the entrepreneurial students got free duds.

It’s Called Business 

One Wharton student was too lazy to take notes during lectures. With the first test looming, the entrepreneurial student borrowed notes from three rather scholarly students, consolidated them into a single document and sold copies to other students for $5 each.

The student scholars whose notes were used to create the consolidated document were given a complimentary copy (and thus the benefit of the notes from the other two students). The scholars also enjoyed the prestige of having their notes included in the consolidated document, as it was a clear indication of their intellectual prowess – a status highly valued by the legion of Wharton overachievers.

This mini-venture was so successful that the student continued to sell such consolidated notes for the remainder of the student’s Wharton tenure, earning a number of hefty fistfuls of beer money.

At one point during the second year of this enterprise, the entrepreneurial student was approached by an indignant Wharton Professor who tried to shut down the note selling operation, which was taking place outside of the Professor’s classroom. When the Professor asked, “What do you think you are doing?”, the smartass entrepreneur replied, “It’s called business. Last I checked, this was a business school.” Rather than shutting down shop, the student simply moved his operation down the hall and continued to satisfy the brisk student demand for the consolidated notes.

Nostalgic Graduation Poster

Another Wharton student contracted with an undergraduate art student and paid him a nominal sum to draw a caricaturized map of the Wharton campus, showing the proximity of all the bars, hangouts, etc.

The entrepreneurial student then printed a couple hundred of the maps, framing a few dozen, and set up shop in front of the business school.

All the prints were sold in a matter of hours, at a profit of $30 each. This mini-venture did so well that not only did the student earn enough money to travel to Europe after graduation, the entrepreneur franchised the idea to a lower classman, who then sold the same prints the following year and split the profit with the entrepreneur who originated the idea.

From Small to Tall 

I was once on the Board of such a company that evolved from a mini-venture into substantial company. The mini-venture began when the Founder agreed to remotely manage a server for a friend, as a favor. To make his job easier, he created automated security tools to protect the server against hackers. He then showed his security toolkit to a colleague, who laughed at the user interface, built a better one in his spare time, and unwittingly became the Co-founder of the mini-venture.

The two Founders then posted their security code online as a personal-use, freemium product and it quickly became a popular open-source security tool. Within days of releasing the personal version, the Founders began receiving inquiries regarding the price of a commercial version of their product.

One such inquiry came from the Salt Lake Winter Olympic Committee. With no idea what a reasonable price might be, the company agreed to provide enterprise-wide security to the Salt Lake Winter Games for a few thousand dollars. The Founders were thrilled to get paid for what had previously been a hobby and the Salt Lake committee was happy to pay tens of thousands of dollars less than they had budgeted for online security.

When checks started arriving at their condo (they were running the part-time business from a spare bedroom), the Founders realized that it was time to quit their day jobs and focus on turning this mini-venture into a full-fledged startup. The company thrived, generating millions in revenue and was eventually acquired by one of its rivals.

Smooth Operator

Mini-ventures demonstrate to an investor that you know how to make something from nothing. Generating profits, even in a mini-venture, is a precursor to similar success on a larger scale.

Just like larger enterprises, mini-ventures force you to pull together disparate resources and bring multiple parties together. Such ventures also demonstrate that you can effectively negotiate with multiple parties and craft mutually advantageous deals. In short, small ventures prove that you can effectively sell yourself, your idea, your product and your startup’s overall opportunity.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.

Image: Dimas Ardian/Bloomberg

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Confessions Of A VC: Crap – Why I Passed On Uber’s Seed Round Mon, 29 Feb 2016 13:00:44 +0000 A version of this article previously appeared on Did I passed on Uber’s seed round? No. It’s worse than that. I never even bothered […]

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image001A version of this article previously appeared on

Did I passed on Uber’s seed round? No. It’s worse than that. I never even bothered to listen to Travis’ pitch, even though I was repeatedly offered the opportunity. I then passed on Uber’s A Round as well, which I thought was valued too high, in light of the company’s progress.

Too bad, as the initial funding round has increased over 4,000 times in value, making a $250,000 investment worth more than $1,100,000,000. Nope, that’s not a typo. Two hundred and fifty thousand would have netted my firm more than one billion dollars.

As discussed in Why I Passed On Twilio, VC's love to talk about their successes, but seldom publicly acknowledge their mistakes. However, passing on a killer investment is not the worst error an investor can make. It is far more detrimental to one’s returns to make investments in companies which fail to return capital. A VC has done their job when their funds include enough great companies to generate an industry-leading outcome.

Thus, while it is painful for a great investment to pass you by, the pain is wistful, not acute.

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The Billion Dollar Email

Although Uber never pitched Rincon Venture Partners, we share a very good mutual friend with Travis Kalanick, Uber’s Founder and CEO. Our mutual friend mentioned to me over breakfast during the late summer of 2010 that Uber was raising a seed funding round. At that moment, I could have been one of Travis’ first pitches, if I had been curious to learn more.

In between mouthfuls of home-fried potatoes, I recall telling my friend (paraphrasing from memory – his and mine), "It might work in San Francisco, Boulder and Austin, but I don't see it expanding beyond a few small cities with strong tech communities. If they try to move into Philly, New York or Boston, they're going to get their throats slashed." Note: I am not disclosing my friend's identity. He is now a Senior Executive at Uber, although back in 2010 he had no formal affiliation with the company.

A few months later, on December 30th, 2010, my friend appended the following text to a lengthy, non-Uber oriented email:

“not sure if you guys are aware of uber ( essentially they are a service that turns the downtime of town car/limo services into cab service. i thought it was a great idea given how crappy cabs are and it seems to be getting traction. one of my old *** <company name redacted> colleagues is the ceo. probably not up your alley, but thought i'd mention it.”


My email response was characteristically brilliant, stating:

*** <name redacted> - I think you have mentioned this one before, not sure. Sounds familiar.


Looks like they are ultimately providing the service (via independent drivers), correct? If so, not a great fit. If they are selling s/w that allows independent drivers to make more money, that is a bus model that fits within our overall investment thesis (i.e., s/w sales vs real-world fulfillment of a service).


Keep them coming, esp those for which you know the Founders / key players.


My Partner, Jim Andelman, responded a couple of days later with a much more cerebral and thoughtful email, stating:

“Potential issues:

#1 they got a cease and desist order from SF for operating a taxi service w/o a license.  Turned out to be great PR, got them lots of attention, and they're likely able to change their TOS to get in compliance.  But still a risk, and something that may need to be handled a little differently in every single jurisdiction.

#2 (bigger one IMO) is the limited number of metro areas that have the right supply and demand dynamics for this to work as a good service.  I'm just not sure it's gonna fly everywhere, and may end up nichey even where it does work well enough.  Oppty is for them to expand beyond car rides, into other verticals (that are similarly inefficient and have a location component) once they are firmly seated on the handset.  But each vertical requires a lot of focused attention, so could be like building a bunch of businesses at once, which is hard.”

Over the next several years, my Partner and I were reminded of Uber's success every time we connected with our mutual friend, long past when it became a slightly painful joke.

What I Missed About Uber

There were two areas in which I greatly underestimated Uber: (i) its ability to create a robust, two-sided market and, (ii) its wily use of consumers to muscle its way into hostile markets.

Two-sided Market – One reason I was not excited about Uber was because its success was predicated on creating a two-sided marketplace of drivers and riders. Not enough drivers and riders would have shunned the company. Likewise, a dearth of riders and drivers wouldn’t have been incentivized to sit idle, waiting for fares.

Although a number of extremely successful companies have pulled off two-sided markets (notably, Airbnb, eBay and Rincon portfolio company Tradesy), most startups lack the capital to achieve critical mass necessary. Uber's development of its marketplace is a textbook example of how to do it right.

The company began operations in San Francisco, a tech savvy city with a concentrated downtown and notorious for its terrible taxi service. Additionally, Uber initially focused on replacing limo-style town cars and thus appealed to a relatively small number of upscale riders, inclined to have smartphones and be price insensitive.

Although it was a brilliant market entry strategy, it contributed to my misunderstanding of the opportunity. I viewed their value prop as a town car substitute, rather than appreciating the larger opportunity to eventually cannibalize the taxi market.

It's possible I would more fully understood the company’s vision, had I spoke with Travis and not relied on my friend’s secondhand description of the opportunity.

Consumer Leverage – Uber marshaled the collective efforts of its users to overcome decades of entrenched political graft and corruption. They accomplished this in a number of ways, including offering free rides in markets politically closed to them. Uber gave dissatisfied taxi consumers a taste for their superior service and then made it easy for them to express their outrage via social media and email barrages directed at local political hacks. Eventually, even the most corrupt politicians acquiesced when faced with an angry electorate.

Listen To Trusted Sources And Take The Freakin’ Meeting

The ultimate lesson I learned from scoffing at Uber is that I should have honored my friend's thoughtful (and repeated) suggestions and his nose for great businesses. A successful, serial entrepreneur in his own right, he mentioned Uber to me and my Partner several times when it was at a stage that fit within our investment focus. He was clearly excited about the opportunity and was trying to help his buddy Travis by pulling in what he considered to be helpful investors. Yet we never took the time to learn more about Dang it.

Note to my loving wife: The next time a friend knocks me over the head with a billion dollar opportunity, I’m going to listen. Promise.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.

Image: Logo courtesy of Uber, all rights reserved

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Real Entrepreneurs Are Never “Stuck” Thu, 18 Feb 2016 02:00:11 +0000 A version of this article previously appeared Forbes. Professional investors do not fund great ideas. Instead, they fund proven businesses. The reality is that most […]

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A version of this article previously appeared Forbes.

Professional investors do not fund great ideas. Instead, they fund proven businesses. The reality is that most venture capitalists are not very venturesome. Thus, it is incumbent on entrepreneurs to turn their ideas into viable businesses before seeking venture funding.

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Entrepreneurs Are Never Stuck

I recently was sent a Tweet from an aspiring entrepreneur which said, “I have a prototype but I need funding to bring it to market. I’m stuck.”

Wiley entrepreneurs pre-sell their products and get customers to fund their businesses. They are never “stuck.” For instance, at Computer Motion (acquired by Intuitive Surgical), we envisioned a robot that would assist surgeons and allow them to perform “open” procedures minimally invasively. We were long on vision and short on capital.

Instead of feeling “stuck,” I hit the road and began pre-selling our vision of a minimally invasive cardiac robot via a PowerPoint deck. Within a couple of months, we had orders from the Cleveland Clinic, Hershey Medical Center and Brigham and Women’s Hospital. In each case, we were honest with the surgeons, making it clear that we needed pre-payments so we could build the robots. These sales allowed us to prove the efficacy of robotic surgery and ultimately led to the creation of the medical robotic industry. If we had waited around for an investor to fund our vision, we’d still be waiting.

Venture Capital Should Be Your Investor Of Last Resort

As a Partner at Rincon Venture Partners, we review over 1,000 deals each year, from which we make a half dozen or so new investments. The reality is that most ventures do not enjoy the growth rate that will lead to an exit large enough to provide a venture capitalist with a reasonable return.

As the following Kaufmann Foundation research makes clear, 90% of seed capital comes from sources other than venture capitalists. Even though VCs shy away from funding ideas, there are fortunately a number of seed stage alternatives.

Personal Savings & Credit Cards (36%) – All too often, the only person who truly believes in an aspiring entrepreneur is the entrepreneur herself. Thus, it is not surprising that the single largest source of startup capital comes directly from the business’s founder.

Banks (35%) – Startups with physical assets are good candidates for collateralized debt financing. Banks are precluded from speculative investing, but proven business models with hard assets (e.g., retail, restaurants, service businesses, etc.) are within their lending purviews.

Professional Investors (10%) – Most of the seed funding from VCs goes to previously successful entrepreneurs, rather than first-time founders.

Friends, Family & Fools (6%) – A common source of startup capital is from people who know the founder intimately and are willing to invest in her ability to succeed, rather than the merits of her idea.

Government (2%) – The SBA and various grant organizations (e.g., DARPA, NIH and NSA) offer a small percentage of startup capital, primarily because the regulations and ongoing reporting requirements are onerous.

Note: the figures do not add up to 100% because the balance is comprised of a variety of ‘other’ sources.

In addition to the above sources of capital, “unstuck” entrepreneurs tap into crowds to fund their businesses. Crowd sourcing platforms (e.g., Kickstarter, Crowdfunder and AngelList) are good options for startups that manufacture physical products customers can pre-purchase.

As the Kaufmann data proves, during a startup’s nascent stages, entrepreneurs should not seek venture funding. Instead, they should initially fund their businesses with their savings, the largesse of friends and family and most importantly, from customer dollars.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.

Photo:  Chris Ratcliffe/Bloomberg

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Get Free Drinks, Upgrades And Smiles When You Travel Mon, 01 Feb 2016 13:00:53 +0000 A version of this article previously appeared Forbes. A very good friend of mine has heard me tell many a tale of trips in which […]

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A version of this article previously appeared Forbes.

A very good friend of mine has heard me tell many a tale of trips in which I have scored free drinks, gratis hotel and car rental upgrades and various travel freebies. However, without experiencing my stories first hand, he always suspected there was a degree of embellishment involved to make my stories a bit more entertaining.

We recently had the opportunity to travel to Hawaii together and I was able to show demonstrate the power of a little respect and an authentic smile.

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It’s Kool To Be Kind

We began our trip sitting in the dreary, uncomfortable airport terminal, with ample time before our flight. Bored, I explored the terminal and located the airline’s club lounge. Despite not being a member, I entered and immediately knew where I was going to spend the next couple of hours. Sitting behind the receptionist desk, in a chair that was two sizes too small for him was, Don, a large Hawaiian with a hearty smile. He was clearly bored with the paperback book in his oversized hands and he seemed open to chatting.

After some brief pleasantries, I asked him what it cost to join the club and if they offered a one-day pass. He laughed and apologetically said, “It’s something like $500 a year. We don't have day rates, but I can let you slide this time if you just want to check it out." I thanked him and hurried back to grab my buddy.

After a leisurely time in the airline club, we boarded our flight and met Kelly, a young surfer dude in his early twenties who was our attendant for the next five hours. Once everyone was settled in their seats, I asked him where he lived in Hawaii, where he surfed, what sort of board he used, etc.

As soon as we were airborne, I asked Kelly if he could hook me up with a Mai Tai. He laughed and asked if I wanted one of his “special creations.” My reply, without hesitation, “Why of course.”

He returned and waited for me to sample the drink. I took a large swallow and sincerely told him, “You are an artist. You should call this ‘Kelly’s Creation.” I had several more of Kelly’s Creations before we landed, all at no charge.

We bid Kelly farewell, hoping we’d see him again on our return flight and headed toward the car rental agency. It was very hot and the woman at the counter did not look happy.

I approached her with a broad smile and asked how her day was going. She replied, “It’s about to get worse. All the flights from the mainland are landing.” She clearly wasn’t happy.

After a bit of joking around, she begrudgingly grinned and eventually was laughing at my corny humor. She waived the fee for my friend to be an authorized driver she gave us a gratis upgrade to a slightly nicer vehicle.

So What

Entrepreneurs are likewise well served to seek out and cultivate transitory relationships with service employees whom self-important professionals generally overlook, such as: waitresses, car rental agents, flight attendants and call-center agents.

Such folks encounter a horde of unhappy, disgruntled and downright surly travelers each and every day. Thus, it is easy to differentiate yourself by simply smiling and showing these hard-working people the courtesy they deserve. Greeting someone by genuinely asking, “Wow. How can you look so cool under pressure when you are so busy?” will often be rewarded with a Bro deal.

Landing A Bro Deal

Identifying and closing a Bro Deal involves three simple steps.

Open The Door – You must make an authentic connection with your potential Bro. Always start with a friendly, sincere smile. Then engage your would-be Bro as a peer, a courtesy they may seldom experience from most of their harried, self-absorbed customers.

The specifics of what you say will depend on the situation. Irrespective, it should be a genuine expression of interest. For instance, after a long day of travel, I approached the night clerk at a hotel at about 1:00 in the morning. He was clearly studying a textbook. I immediately respected the fact that he had a night job while attending college. Rather than ignoring his book or asking him a superficial question like, “What’s your major” or “Where do you go to school?” I asked him, “What are your dreams once you graduate?” He hesitated, clearly debating if he should give me a thoughtful, honest answer or if he should remain in transaction mode and give me a cursory, glib reply.

He opted for honesty and told me that he wanted to someday open a veterinary clinic because he loved animals. We had a pleasant conversation, I was given a free upgrade without even asking and we parted with me sincerely wishing him the best. I didn’t even realized he had upgraded me until I arrived in my multi-room suite.

Obviously, the more unique, appropriately personal and clever your remarks, the faster and wider the door will open.

Make A Connection – Once the door is open, make a connection by finding a point of commonality. By politely probing, you should be able to identify a city, college, country, occupation, sports team, author, musical artist, etc. that you and your Bro have in common. Such similarities lead to liking and liking ensures that your Bro will relate to you as a kindred soul, rather than another anonymous customer.

I recently rented some kayaks on a beach in Southern California. Within three minutes of chatting with my Kayak Bro, I learned that: (i) he previously lived within a few blocks of me on the same street in Philadelphia, (ii) his brother went to my Alma Matta, and (iii) he currently attends the University where I teach.

After I had opened the door and made a solid connection, I asked him if he could give me a “Local’s Only” discount. Without hesitating, he gladly knocked 20% off the price.

Ask For A Deal – Once you establish a personal connection with your Bro, ask them for a deal. If you handled steps one and two appropriately, giving you a deal will be a natural byproduct of your camaraderie.

Bro Deal Tips

Not every situation is conducive to cutting a Bro deal and not every person you meet is a potential Bro. Below are considerations that will significantly enhance your Bro deal success rate.

Time And Place – Avoid attempting to cut a Bro in hectic situations in which you cannot properly make a connection with your potential Bro. If there is no connection, there will be no deal.

Out Of Earshot – Even if you establish a solid connection, do not ask for a Bro deal if your Bro’s boss or other customers are within earshot. Not only is it simply bad form, it will also decrease your chances of getting a deal. If there are a line of customers behind you, be cool and lower your voice when you ask for a deal.

Bending vs. Breaking – Bending the rules to get a free upgrade is one thing. Breaking the rules is something else altogether. Only request things which are relatively inexpensive and will not put your Bro’s job in jeopardy.

Be Realistic – No matter how much you Bro-up with someone, there is a limit as to what they can do for you. Use a liberal dose of common sense as you assess each potential Bro situation.

For instance, it is easier for a flight attendant to provide coach passengers free drinks when the plane has a First Class cabin, as the tracking of beverages is more difficult on such flights. The absence of a First Class cabin on a commuter planes generally takes free drinks off the Bro menu.

Timing Is Everything – Do not rush the Bro relationship. Even though your entire interaction may only encompass a few minutes, if you become too familiar too quickly, you will greatly decrease your chances of success.

Let your potential Bro set the tempo. If your displays of respect and kindness are well received, great. If they are ignored or rejected, keep smiling, but stop pounding on the Bro door.

The Real Reward

If you are rolling your eyes and wondering why anyone would bother asking for such petty deals, I will let you in on a secret – the real reward is not saving a few shekels.

The foundation upon which Bro Deals are built is the levity and personal connection infused into otherwise tedious situations. Traveling becomes less mundane and a lot more joyful when you create a genuine rapport with the folks you meet along the way. The small, tangible freebies that sometimes result from such interactions are a nice bonus, but the real payoff is making brief, yet meaningful connections with otherwise anonymous people who share this planet with you.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.

Image: Photo by Eric Charbonneau/Invision for Twentieth Century Fox/AP Images

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Don’t Let Faux Unicorns Screw Up Your Financing Mon, 25 Jan 2016 13:00:55 +0000 A version of this article previously appeared on Forbes. It is no secret that the number of private companies with valuations in excess of one […]

The post Don’t Let Faux Unicorns Screw Up Your Financing appeared first on John Greathouse.

image001A version of this article previously appeared on Forbes.

It is no secret that the number of private companies with valuations in excess of one billion dollars has skyrocketed since the start of 2014. As show in CBInsight’s chart, the number of such “unicorns” created during the first half of 2014 was roughly equivalent to the number created during the prior three years.

The duct tape securing the faux unicorns’ horns won’t hold up to the market’s scrutiny forever. The inevitable outcome will be the collapse of the weakest companies, while those with sound underlying business models will be recapitalized with reasonable valuations.

If such write-downs only impacted the faux unicorns and their avaricious investors, there would be little need for alarm. Unfortunately, the coming market correction will reverberate to all stages of venture investing.

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Find A Partner Not A Banker

The constant media coverage of the aberrant unicorn valuations has caused otherwise level-headed entrepreneurs to expect investors to participate at prices which are detached from their startups’ fundamentals. At Rincon Venture Partners, we continue to be disciplined, seed-stage investors. However, we have seen pre-money valuations more than double in the past year.

Ultimately, a startup’s value is based on what the market will pay. However, despite the hyped stampede of faux unicorns, savvy entrepreneurs balance the important issue of valuation with the following non-financial aspects of a healthy investor / entrepreneur relationship.

Company Friendly – Investors should demonstrate an entrepreneur-centric approach with their actions, not solely their words. For instance, a company-friendly investor typically only participates in a follow-on funding round beyond their pro rata participation with the Founders’ explicit approval. This is significant because pro rata investors are relatively indifferent as to a future funding round’s valuation. Thus, a pro rata investor’s advice is not self-serving, as their dilution will be the same as Founders and other stockholders, irrespective of the valuation.

Investors that insist on investing more than their pro rata allocation in follow-on rounds have an incentive to compress the company’s valuation to maximize the percentage ownership acquired by their investment. Such depression of funding valuations increases the entrepreneurs’ relative dilution. Investors which either do not participate or do so at a rate below their pro rata are inclined to want as high a valuation as possible.

Shared View Of Success – Experienced entrepreneurs who have previously participated in large funding rounds with high valuations appreciate the direct correlation between the post-money valuation of their latest funding round and the range of financial acceptable outcomes to their investors.

Although mega rounds with high valuations can be an effective way for large VC firms to efficiently deploy their capital, this approach can actually decrease a startup’s chances of success. For instance, assume your investors will not be satisfied with anything less than a 5x return. Thus, if they invest $10 million and own 35% of your company, your venture’s exit must be at least $140 million (($10 million x 5) / 35%). According to Pitchbook, during the first half of 2015, “M&A exits valued at less than $100 million made up the majority of exits or about 65% of the total number of deals, which was up from about 60% in 2014.”

I recently met a young CEO who had previously founded a company that raised a sizable round at a $30 million pre-money valuation from two large, Bay Area VC funds. Shortly thereafter, the company received an acquisition offer which would have put over $15 million into the Founder’s pocket.

When the CEO excitedly called his venture capitalists, he was shocked when they literally laughed in his ear. When their laughter subsided, they condescendingly explained that they did not invest in his company to get a “2 or 3x multiple on our money.”

Years later, the company was sold for substantially less than the total capital invested. Rather than walking away a decamillionaire, the Founding CEO lost most of his life’s savings, as well as a significant amount of his friends and family’s money.

Manage Dilution – Valuation is only one factor impacting dilution. The other is so obvious, it is often not given the scrutiny it deserves: the amount of money raised. Smaller funding rounds with reasonable valuations often results in less dilution for the Founders and their employees. The most effective way to minimize dilution is to raise a modest amount of money and deploy it to create a capital-efficient path to revenue.

You Team Is Not Fungible – Investors should invest your team, not the market sector you are pursuing. Sector investors are more apt to replace founding members of the management team with executives from their professional network.

Ironically, this approach actually increases the company’s execution risk, as significant uncertainty is inherent whenever an ad hoc team is formed. When a senior executive is “transplanted” into an existing team, the risk that the transplant will be “rejected” should not be underestimated.

Multiple Winners – Certain markets inherently lend themselves to one or two companies owning their space (think Uber, eBay, YouTube and Twitter). However, non-market place opportunities support multiple successful companies.

Prudent investors do not demand that entrepreneurs pursue bet-the-company strategies. However, VC’s with large funds require huge outcomes to earn a sufficient return. This dynamic drives these investors to overly-value grand slam outcomes.

An investor looking for a career-making deal might encourage you to take imprudent chances in the hopes you are the “winner” in a highly competitive market. If you fail, their downside is minimal. They will remove your company’s logo from their website and try to forget they ever made the investment. For you, the impact of a negative outcome is far more tangible and dramatic.

Social Contracts Are The Foundation Of Successful Partnerships

When entrepreneurs are viewed by their investors as partners and not their subordinates, a healthy, long-term and mutually beneficial relationship often develops. When entrepreneurs feel they serve at the whim of their overlord investors, trouble (especially for the entrepreneurs), usually ensues. If you choose to chase unicorn-inspired valuations, be sure the source of the funds will be collaborative, rather than combative.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.


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