Mentoring Entrepreneurs the FounderCorps Way

What is Mentorship?

My colleagues at FounderCorps have worked diligently to define what Mentorship is, and how we want to work with entrepreneur mentees.  This post summarizes and paraphrases some of the highlights from Jonathan Aberman’s post on the FounderCorps Mentorship Best Practice page.

The mentor/mentee relationship is a unique and personal relationship, which transcends a mere advisor or board relationship. It is one of the most rewarding things people can be involved in outside of their family relationships.  Mentorship doesn’t happen by accident. Both the mentor and the mentee have their parts to play in a successful mentor/mentee relationship.

A “mentor” is a person with professional and life experience that can be shared to help others learn and develop.  The mentor is willing to share these experiences in a manner that the mentee can react to and understand.  While there may be commercial aspects to a mentor’s engagement, at its best the advice and help that is offered is provided freely and without expectation of immediate reward.

A mentee is willing to be engaged and respectful of the mentor’s time and should understand that the best mentors are not motivated by money but by personal satisfaction.

Mentorship is not merely advice. It is a bilateral commitment between two people, based upon mutual trust and a commitment.  The commitment of the mentor is to provide advice and help to the mentee with the mentee’s best interests in mind.  The commitment of the mentee is to be ready to listen to the advice and take the help and act upon it.  The currency of the mentor/mentee relationship is personal satisfaction and shared accomplishment.

Is Mentorship the Same Thing as Providing Advice?

A mentor/mentee relationship often is centered upon the giving of advice; however, a mentor/mentee relationship is more than merely providing advice; it is a bi-lateral relationship where the mentor and the mentee both work with and benefit from the other. There is a very important aspect of shared mission that exists at the core of a mentor/mentee relationship.   A mentor doesn’t merely provide war stories or open ended advice. Instead, a mentor provides advice in context with the best interests of the mentee in mind.

Mentorship Must be Free of Conflict

Conflict in itself is neutral – it is merely a lack of congruence between the best interests of the person giving advice, the person getting the advice, and the organization (if any) through which the advice is given.  The conflict does not mean that the various parts of the relationship are destined to fail, or that the conflict cannot be resolved in a way that serves the best interests of all.  In an ideal situation, any conflict should be identified and discussed.  We believe that in any advisor/advisee relationship conflicts should be identified and acknowledged.  This does not defeat the possibility of a successful mentorship, and results in an honest relationship where parties will know which best interests will ultimately control.

The mentor/mentee relationship should usually be free of conflict.  The best interests of the mentee should be tantamount.  Following from this is an expectation that the mentor is not exposed to liability or financial obligation.  The best mentor/mentee relationship is based upon advice and support freely given and freely ignored. 

What Supports a Successful Mentor/Mentee Relationship?

The currency of a successful mentor/mentee relationship is personal satisfaction. It is not a commercial relationship, and relies upon participants deriving psychic benefits.

How Does the Mentor/Mentee Relationship Begin?

Mentorship can arise out of formal relationships; however they cannot be created formally. Directors, Advisory Board members, and supervisors may offer advice, but they are not mentors.  The mentor/mentee relationship arises informally through positive association over a period of time.  Its success requires a personal relationship, based upon trust. This allows it to be more useful for the mentee, but also more difficult to obtain.  As is the case of any personal relationship, consistency and integrity over an extended period are usually required to establish the deep connection of a mentor/mentee relationship.

Does That Mean Mentor/Mentee Relationships Should Always Be Informal?

The mentor/mentee relationship has to work for both parties.  This often means that the best relationships are those that have clarity of expectations, for example, time commitment per month or time period.  Both parties should acknowledge that most mentor/mentee relationships have an end point, where they do not work for one or the other.  Therefore, the best mentor/mentee relationships often arise out of a formal interaction, for example, assisting in a business plan competition.  Or, around a specific time period.  In the absence of a formal initial structure, mentors/mentees should include in their interactions a regular check-in discussion, to make sure that both are getting the positive benefits they need for it to be a rewarding relationship.  Expectations and motivations need to be understood and acknowledged at all times.

What is the Best Way to Find a Mentor?

Mentorship can’t occur until the mentee is ready for a mentor’s assistance.  Mentors are best found through a variety of ways including personal networking, positive interactions in a formal advisory setting, and via an introduction from a trusted referral source.  Formal vetting programs, like an advisory program operated by a University or community group are great ways to find mentors.  Professional service providers are also a potential good source of mentors, because of their deep relationships with many experienced people who could be suitable mentors.

What Are the Most Important Attributes of a Successful Mentor/Mentee Relationship?

The most successful mentor/mentee relationships have many of these characteristics.

  • Understanding of each other’s “winning strategy.”  In order for mentors and mentees to communicate well they must appreciate how the other deals with challenges, and speak to each other in a way that the other can hear. Mentors/mentees don’t have to have the same winning strategy, but when they don’t match up there is a need for a higher level of sensitivity and care.
  • Both mentor and mentee have to be coachable. Both parties must be self-aware and able to take criticism and modify their behavior. Without coachability you don’t have a real exchange of information and a shared experience – you have one-directional communication.
  • Both are respectful of time commitments.  It’s not always convenient from a work-life balance perspective to be a mentor or mentee. It’s essential that each party be flexible whenever possible, and tries to limit emergencies to real emergencies.
  • Both must act on information received. Each party must listen to the other and demonstrate through conduct some sort of acknowledgment. A good mentor does not need to have her advice followed, but if a mentee continually ignores advice and thoughts without discussing why, he runs the risk of creating for the mentor the sense that she is wasting her time. For the mentor, not listening to the mentee and modifying advice or how it’s delivered, creates for the mentee a sense that the mentor isn’t really interested in a bilateral relationship.
  • There must be honesty and transparency. The best mentor/mentee relationships are valuable because there is a real exchange of viewpoints and feedback. This can’t happen if critical facts are omitted, or words are measured to protect feelings.
  • Mentors must be willing to provide substantial benefits.  Mentees look for mentors to provide support, empathy and contacts.  They should also look to their mentors to provide an external monitoring process of the mentee’s progression against the shared goals identified by the mentor/mentee.
  • Mentees must not embarrass or abuse their mentor’s trust.  Mentees should ensure that any introduction or other extension of assistance by the mentor is treated with respect and that there is follow through.  There needs to be an appreciation that when a mentor acts to assist a mentee by making introductions or otherwise using his own influence, there is a reputational risk to the mentor if the mentee does not perform.
  • There must be discretion. Along with honesty, keeping confidences is essential, since personal information and feelings are shared. The more comfortable the participants are in sharing sensitive information, the more valuable and lasting the mentor/mentee relationship.
  • Each party must be open to having the relationship change over time. As in any other personal relationship, the mentor/mentee relationship evolves. Many relationships are situational, or are relevant for a limited time period. Also, at times one party “outgrows” the other. “Breaking up” with a mentor/mentee can be emotionally difficult. It’s essential to be professional when the relationship is no longer satisfying to one party or the other.
  • A mentor/mentee relationship is not a family relationship.  A mistake that many mentor/mentees make is to analogize their relationship to a family relationship, like a big sister or uncle. But mentors/mentees are not your relatives. They are people who are in a mutually beneficial relationship, based upon positive psychic rewards. You should never take a mentor/mentee for granted.
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12 Most Critical Questions for Raising Capital for Your Startup – 12most.com Guest Post

Stack of 100s at 12most.com

This was my August 16, 2011 Guest Post on 12most.com.

Right now – RIGHT now – is the BEST TIME to start a business, and there’s never been a better time to start raising capital. I firmly believe this. Why?  Because tough economic times cause tremendous dislocation in almost every market. Established companies are playing defense, trying to figure out where the economy is heading, laying off people, cutting costs, and trying to protect their turf. Fear is in the air.

Fear spells opportunity for new startups that can compete because they are small, nimble and agile.  Using creativity and resourcefulness, entrepreneurial startups can improve the way things have been done in the past, or attack brand new markets with new technology.  Startups are not encumbered by the baggage of their larger competitors.

However, raising money in tough economic times is, well, tough!  Angels and VCs seek to cherry pick the very best ideas, those that are most likely to succeed.  Money is still available for the best ideas and teams, but you have to be tuned in to what these investors need in order to make an investment in your startup.

Based on my experience as an entrepreneur, mentor, angel, VC fund LP, and board member, here are the 12 most important questions you need to answer when raising capital for your startup:

1. Money

How much do you need and what is the use of funds?

Investors want to know that you have thought through your capital requirements and where the money will be put to use.  Is it for product development, marketing, building out your sales team, etc.?  You must be ready to justify this request, and talk about how this gets you to the next stage in your startup’s development, as well as how much more money you may need in the future.  Know what kind of deal structure (preferred stock, convertible debenture, common stock, etc.) and valuation you are proposing to your investors.

2. Pain – What pain are you fixing?

Your product or solution must fix somebody’s pain, whether it’s making life easier, saving money, or making a customer more efficient.  Talk about the severity of the pain you are addressing, as well as how much money your customer will pay for it.  Show some basic market research, ROI analyses, and, ideally some 3rd party customers who are already happily using your product or service.

3. Raising Capital for Your Solution: What is it, exactly?

Exactly what product or service are you offering and how does it work?  Too many times, I have seen wishy washy descriptions of the solution because the idea is being matured, or in Alpha mode.  I have seen many super smart engineers with grand plans that are completely unfocused trying to be everything to everybody. Few have been funded.   Investors want to see certainty and simplicity in your proposed solution to the above-mentioned pain.

4. Customers – Who, exactly, is your customer?

You need to know WHO will be buying from you.  Are you selling B2B, B2C, B2G, all of the above?  Are your targets Fortune 500 companies, SMBs, NGOs, the Federal government, etc.  At what level are you selling (CEO, CFO, VP of Marketing, etc.)?  What kinds of situations will they need to be in to absolutely must buy from you?  The more precise the better.  And bring some testimonials or anecdotal evidence from these targets.

5. Execution Plan – What’s your plan for selling and delivering?

One of the biggest questions and concerns investors have is HOW you plan to win customers.  What’s your strategy, who’s leading the sales effort, and so on. Be prepared to discuss not only your marketing & sales plans and customer acquisition strategy, but also your customer retention strategy.

The Angel on Your Shoulder

6. Raising Capital, as a Team – Who are the players and what are their backgrounds?

Angel investors are not only investing in an idea or a market space.  We are investing in a team of people with, preferably, a strong and experienced founder.  Talk about your key executives and your advisors too (lawyers, accountants, Advisory Board members), anyone who is adding considerable value to your venture.

7. Culture – What kind of culture are you building?

Culture is the DNA of every organization, and good culture is a requirement for success.  Culture can even be a differentiator against your competition.  The best investors know this.  Talk about your culture, your approach and philosophy towards business operations, leadership development, hiring, customer care, product development, and other key parts of your business.

8. Competitors – Who are they and how will you compete?

Competition is one of the most important questions to answer.  I have met with countless entrepreneurs who claim that they have “no competition.”  This is a particular pet peeve of mine, because every company has competitors, and all customers have choice.  Believing that you don’t have competitors is not only naive, it is a recipe for disaster.  So talk about all your competitors, both direct and indirect, and show how you are better and how you will beat them.

9. “Moats” – How are you special and what are your differentiators?

Warren Buffett likes to invest in companies with high barriers to entry, or “moats,” as he calls them.  Startups are risky enough for investors, and they want to invest in ventures which have a higher probability of success.  Moats include IP, patents, unique skills or knowledge, proprietary methods, unique brands, unique culture, etc.

10. Raising Capital for Pivotability – What will you do if your Plan “A” fails?

One thing is absolutely certain in a startup: your original plan will not happen the way you initially envisioned it.  Investors want a team that’s resourceful, agile, and creative enough to pivot, if necessary.  A sailboat in a regatta does not go from Point A to Point B in a straight line.  It gets there by “tacking, ” or making a series of rapid and opportunistic turns in order to maximize the wind in its sails.  Startups have to do the same thing, and investors want to see that you have thought through your contingency plans.

11. Commitment – How much money did you personally invest? Is this a full time job for you?

The best investors take a “partner” approach to investing, and they want to invest alongside their entrepreneurs.  I’m not so much looking for huge sums of cash invested, but rather whether the amount invested is a “significant” percentage of the entrepreneur’s net worth.  If a founder has put a good chuck of her net worth into the company, or taken out a second mortgage on her home, the investor will feel more comfortable about the founder’s putting her money where her mouth is.  As for working “full time,” this is essential.  I have never seen a startup succeed that didn’t have full time (80 hours a week) commitment from its founding team.  Be ready to field questions about how much your team is willing to sacrifice in order to win.

12. Exit – How are you going to make your investors money?

Investors are not looking to put their money in forever.  You have to paint the picture of how they will get their money and profits out within their expected timeframe (generally 4-7 years).  Be ready to talk about how you’re going to exit (for example via IPO, sale, recap, or refi).  How is the market for your proposed exit options?  Talk about recent deals in your space and get some data from the experts (M&A specialists, deal lawyers, etc.).

I hope this helps you as you think through your approach to pitching angels and VCs.  If you believe in your startup, then be persistent. Don’t give up!  If you can’t get funded initially, then prove out your business model by getting traction, i.e. happy customers, and figuring out other creative ways to raise the capital you need, whether it’s by getting equipment leases, vendor financing, customer deposits, or even money from “FF&F” (friends, family and fools).

Good luck out there!  It’s a great time to pursue your dreams!

Photo courtesy of amagill. Some rights reserved; used under creative commons license.

Winning Advice for Aspiring Entrepreneurs – Part 2

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As an evangelist of entrepreneurship and entrepreneurship education, I speak often to groups of students and entrepreneurs.  The last slide in my presentation is always “Advice for Aspiring Entrepreneurs.”  In my Winning Advice for Aspiring Entrepreneurs – Part 1 Blog Post, I discussed the first 5 of 9 pieces of advice I give to audiences whom I address. They are:

Integrity

Do It Now

Great People

Focus on Your Customer

Be Flexible

Here are the final 4 bullets:

Build a Culture EarlyI believe that the Right Culture is one of the 5 keys to building a Hypergrowth company.  And it’s never too early to build the right culture.  The minute you hire employee #1, you have doubled your company headcount.  Your startup is a reflection of you, your values, and your vision.  In order to get your team focused on the mission and how to execute, you need to make sure they all subscribe to YOUR values and vision, i.e. your culture.  Write your mission, vision, and values down, and communicate these constantly, in company meetings, emails, memos, etc.  Give frequent recognition and praise to those who embody aspects of your culture.  If you can have your teammates all living the same culture, you will have a huge competitive advantage over other companies in your space.

Be Persistent – Even the “best” startups fail.  And I bet most fail because the Founder gave up too soon.  It may take you 5 years or more to get to breakeven, so go into your venture knowing that succes will not come easily.  It takes energy, time, effort, sweat, and a little luck.  But if you hang in there and persist, you will get some breaks along the way and you will start to grow.  My company, CyberRep, took 4 years to hit $500k in revenue.  It was a long slog to get to that number.  Countless all-nighters, 85-hour workweeks, and sacrifice.  But we persisted, and by being in business and hanging in there, we started to get some breaks and we leveraged those breaks into little wins.  Then the little wins became bigger and bigger wins.  If we had given up early, we’d have never grown our company to $80 million.

Overcapitalize – When raising money, it’s very important to raise a little more than you need. I have seen so many entrepreneurs spend all their time in capital raise mode, when they should be spending time with their customers and building their team.  Raising money is a big distraction, so you need to make sure you have enough cash to get you to your destination instead of filling up many times along the way.  It’s OK to give up more equity because your payback will be in terms of time saved (and invested with your customers and team) as well as the fact that you’ll reach your destination sooner. This is one of my points in a prior Blog Post about Raising Money.

Have FUN!This is the most important piece of advice.  Life is short, and it flies by quickly….so if you’re not doing something you love, you are basically wasting your time. You have the power to change your situation, and the sooner, the better!  If you’re going to do anything, including starting a business, make sure you enjoy it. Sure, there will be many bad days filled with stress and disappointments, but success is all about doing your best and enjoying the ride.

Thanks very much for reading.  What do you think?  I’d love your feedback and thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Featured image courtesy of Robert Scoble licensed via creative commons.

Winning Advice for Aspiring Entrepreneurs – Part 1

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I have had the good fortune of being invited frequently to speak to groups of students (Undergrads and MBAs), and at various trade and industry forums throughout the USA, and even throughout China and in Dubai.  I always end my talks with a slide entitled Advice for Aspiring Entrepreneurs.

It’s my small way of evangelizing entrepreneurship and giving a nudge to those who are trying to muster the courage to start their own businesses.  The slide contains 9 bullets of advice.  Here are the first 5:

Integrity – What do you have if you don’t have integrity?  Say what you do and do what you say.  Do the right thing.  Integrity is the basis of trust which is the basis of all relationships, business and otherwise.  It can’t be faked. And, at the end of the day, you want to be able to sleep soundly at night.  Everyone wants to work with high integrity people, so always operate with the highest degree of integrity.

Do It Now – So many aspiring entrepreneurs are waiting for the exact “right moment” to start their business.  Well, I’ve got news for you.  The “right moment” is NOW.  Why wait? When you think about it, the worst thing that can happen is you fail, and you go back and get a job.  But the learnings you will have amassed are priceless.  With the economy and markets flat these days, a resourceful entrepreneur with a great idea and execution capability can be very successful.  Competitors and established players are in disarray and “playing defense.”  They are cutting costs, and trying to figure out their next pivot while you can start with a blank slate and make a market.  Go for it!

Great People – You can’t win without having a great team around you.  That goes for business, as well as sports, war, etc.  Surround yourself with the very best talent you can recruit for your crusade.  Great people are worth multiples of what you pay them, so take your time and find excellent associates who know how to deliver and who share your passion and values.

Focus on Your Customer – Too many entrepreneurs get enamored with their product or invention, or processes and trivia which have little impact on their startup.  Not to pick on them, but I see this with a lot of engineers and techie entrepreneurs. You may have the best product, the coolest logo, and the most high powered investors and advisors, BUT without a customer, you do not have a business.  The most important thing entrepreneurs need to focus on is their customers, who they are, what they want or need, and how you can help them.  Thrill them and you will be successful.  This needs to be your #1 focus at the beginning, and throughout the life of your company.

Be Flexible – Business plans are awesome.  I have seen many dozens of good ones.  I am a big proponent of planning, because the very act of planning helps you and your team think through challenges and scenarios, etc. and you learn tons through the process. But one thing is certain:  nothing ever turns out as planned.  Because of this, an entrepreneur needs to be flexible.  This could mean changing your solution, modifying your product, selling into a different market segment, etc.  The alternative, being inflexible, could be deadly to a startup.

Thanks very much for reading.  What do you think?  I’d love your feedback and thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Featured image courtesy of dierken licensed via creative commons.

Scaling a Hypergrowth Enterprise – Part 5 of 5 (Capital)

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This is the 5th and final installment in my 5-part series on the five elements of Elements of Scaling a hypergrowth enterprise.  I was the co-founder and CEO of CyberRep, a hypergrowth CRM and call center enterprise which grew annual revenues from $500,000 to over $1.6 billion over a 17 year period.   That’s revenue growth of 320,000% (3200x).

So what are the 5 elements of scaling a hypergrowth company?  Part 1 of this series talks about PeoplePart 2 discusses Culture, Part 3 examines Scalable Customers, and Part 4 delves into Process.  The 5th element is Capital, which is the necessary fuel that every hypergrowth company must have.

While many startups can be bootstrapped with limited capital, the Hypergrowth Enterprise absolutely needs capital.  In order to put in place the foundation for hypergrowth, you need the money to build and perfect your product or service, to hire your awesome talent, and for working capital as you book revenue.

Two Essentials for Raising money are to 1.  Raise money from a Partner, not just an investor and 2.  Raise more than you need, but not too much.

THE INVESTOR PARTNER

To fuel our growth, we raised $20 million in mezzanine capital (subordinated debt with warrants) and $1 million in equity from one partner, Allied Capital, a Washington, DC-based, publicly traded business developement company (BDC).  We did 3 separate rounds over a 4 year period for expansion of facilities, working capital, and the acquisition of 2 complementary targets.  We had multiple term sheets from VCs, mezz investors, and private equity firms.  We chose Allied because, in our opinion, they were more than a capital source, they were a Partner.

A Partner has Deep Pockets – Our partner had a $5 billion portfolio with an average deal size north of $20 million.  While we only raised $4 million in our initial round, we knew we would need to go back to the investor for more money as we grew.  Therefore, we needed a partner who woud readily put more capital into our business.  Raising money is VERY time consuming and disruptive to your business, so by having a deep-pocketed Partner who could fund additional rounds quickly, we avoided having to spend tons of time shopping for new investors for our 2nd and 3rd rounds of funding.

A Partner Understands Your Space – Having made numerous investments in the business services and information services space, including a company directly in our space, our partner brought to us expertise and experience which, inside and outside of the boardroom, proved to be very valuable.  If your investor knows your space deeply, they won’t waste your time with stupid questions and uninformed opinions. Instead, they can focus on the nuances of your industry and add true value.

A Partner Has Operational Experience – Our partner owned outright many of the companies in their investment portfolio. As the owner of these businesses, they had an operational focus on all of their portfolio companies including ours. This was invaluable to us, as we were quite inexperienced and needed all the help and guidance we could get. Too many professional investors have no operating experience, and have never had to hire people, fire people, make a payroll, or close a sale.  Lack of practical experence puts these investors at a disadvantage and, worse, the advice they give you could put you out of business!  Conversely, professional investors who have started and built companies are the best kinds of partners to have because they can share their knowledge and experience with you. They know firsthand how super hard it is to build a business from zero, and they can relate better to you.

HOW MUCH MONEY SHOULD YOU RAISE?

Raise more than you need, but not too much.  What do I mean by this? Whatever amount you think you need to raise, raise a little more.  I know I am generalizing, but in the VAST majority of requests I see, the entrepreneur does not ask for enough money.  Who knows why.  Maybe she’s trying to minimize dilution, or maybe she thinks this current round gets her to a milestone where she can get a higher valuation with the next round.

Regardless, the key thing to keep in mind is that capital is the FUEL for your growth.  If you’re driving from New York City to DC, do you fuel up your car every 50 miles, or do you put enough fuel in your tank to make the entire trip?  Same thing with raising money for your growth.  Be less concerned about dilution and equity give-up and more concerned about having the fuel to reach your destination.  Raising money is a big distraction from company operations, and it’s a real time killer.  Founders need to be focused on wowing their customers and building an amazing team, NOT being in constant fundraising mode.

So how much do you really need?  Think through your scenarios, be conservative on your projections (sales always take longer than you think), and get advice from seasoned pros and advisers as to the appropriate amount.

As for raising TOO MUCH money, this is also a problem.  Why?  Because having the security of a fat bank account can make a startup SOFT and too comfortable. They lose their edge, the bootstrap mentality which is necessary for creativity, scrappiness, and resourcefulness.  Look at all the Dot Com failures that raised too much money, and then wasted it on pricey office space, expensive furniture, ridiculous marketing, etc. because they couldn’t find a better use for that precious resource.  They got soft, then couldn’t be self sufficient when the VC market dried up.

So….raise more money than you need, but not too much.

Thanks very much for reading.  I hope this 5-part series was informative.  What do you think?  I’d love your feedback and thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Featured image courtesy of Asthma Helper licensed via creative commons.

3 Types of Startup Founders – a Cooking Metaphor

What do chefs and entrepreneurs have in common?  Both try to use great ingredients, and apply their energy and experience to create masterpieces.

I love to cook, and I love to watch cooking shows.  Maybe it’s because I worked in my Dad’s restaurants as a young kid.  Anyway, I have found that there are 3 basic types of chefs:  1.  Scientist, 2. Magician, and 3. Artist.

To make a meal, the Scientist is the left-brained chef who meticulously measures and weighs ingredients, and follows religiously a 50-step recipe.  The Magician has no recipe and, in fact, has no preconceived idea what kind of meal she’s going to cook. Instead, she goes to the market and sees what’s fresh and in season, then she goes back into the kitchen and conjures up a creation on the spot.  The Artist is a combination of the first two. He has a general sense of what he wants to make, and how he wants to make it, and works within these guidelines to create his meal.  He dosen’t work off an exact recipe, but instead relies on instinct and creativity to work within his themes.

Having observed, invested in, and worked with dozens of startups over the years, I theorize that Startup Founders also fall into 3 categories, each one similar to those in the cooking metaphor above.

For example, the Startup Scientist may have a super detailed business plan and 30 pages of financial projections including a dozen pages of assumptions (ok maybe I’m exaggerating, but you get the drift).  Some years back, a good friend of mine sold his company for a tidy sum and used the 12 month noncompete period to develop a detailed business plan for a consumer-oriented startup.  He raised $10 million in venture capital. His business plan was amazing, and every possible contingency and possibility was covered, this even before his company earned Dollar One.  What happened?  Within 2 years, he burned through all of his cash and folded the venture.  Why?  I think the Scientist and his team were enamored by his plan, they hired too many executives too soon, and failed to be flexible and responsive to clients needs.  I really think his “awesome” business plan worked against him, and he stuck with it even though he should have pivoted and iterated. The bottom line is that startups are not a “science,” and this approach works better for large companies than startups.

The Startup Magician has NO PLAN.  He has a business idea, and gets to work, whether it’s developing a killer app, or acquiring customers and adopters.  He is open to change and creativity, and pivots and pivots until he finds something that works.  This kind of startup has no real business model per se.  Can this kind of company succeed? Remember Google? They had no business model until a year or so before they went public.  What was Facebook’s business model 2 years ago?  Does Twitter have a business model today?  Most would say it is undefined, but it has to be considered a very successful startup.  These are exceptions.  My personal feeling is that it’s very difficult to build a hypergrowth enterprise in this manner.  Some Startup Magicians create successful businesses, some create nice lifestyle businesses, but most either stagnate, or fail, usually because of a lack of direction.

What about the Startup Artist?  This entrepreneur has rough guidelines for what she wants to achieve in her business.  She knows her product or service, her company culture, the kinds of people she wants to hire, and the markets in which she will compete.  She has a general mission and vision for the startup, and a set of core values which serve as guiding principles.  Maybe she doesn’t have an awesome business plan, or a 10-scenario DCF analysis, but those things are not only NOT NEEDED in a startup, they will in fact inhibit growth and innovation. Ideally, she and her team work off a one-page plan with a couple of key areas of focus, and then they concentrate on EXECUTION.  I believe this type of startup has the best chance of winning because it allows for flexibility and adaptation to changing market and business conditions.  The company also has a general sense of its direction, culture, and style, which will keep it from meandering aimlessly.

The lesson here, I think, is that it’s best for a startup NOT to be to be too exact, nor too free form.  Planning is great, but the plan itself should not be Gospel. The benefit of preparing a business plan is in the planning process itself, where you and your team think carefully about your capabilities and differentiators, your customers, your competitors, financial assumptions, and markets.  But, it’s imperative to keep in mind that the one true thing about any startup’s business plan is that things will NEVER turn out as planned.

To build a hypergrowth company, you must be ready to pivot, to develop new solutions, to move into markets you didn’t originally foresee, and to take on other opportunities without being beholden to some preset plan which was made in theory to begin with.

Thanks for reading, and please leave a Comment below.  What style of Startup Founder do you think has the best chance of succeeding?  Am I being too critical of the Scientist?

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Note:  This Post is dedicated to my good friend Derek Coburn (@cadredc), Founder of CADRE, the UN-networking organization of remarkable advocates.  Thanks D, for suggesting I write a Post about this topic!