Weekly Entrepreneur Minutes
Episode 23. See Opportunities, Not Problems
How do entrepreneurs come up with their ideas? We all experience frustrations in life, from illogical or nonfunctional systems to unmet needs and underpayment for the value we create. Entrepreneurs do not see those as problems, but as opportunities. They ask how they could solve problems better, what businesses should exist that do not, who would value their expertise, and how to exploit inefficiencies for themselves — and then test their assumptions rigorously to build a valuable business.
Episode 22. Act Like an Owner, Not an Employee
In startups, almost everyone owns stock, but few act like the owners they are, seizing the initiative needed to maximize the company’s value. Those in startups should own their areas, understand what actions will create value, get clearance, and then act. One need not be an entrepreneur to work in a startup, but everyone should be.
Episode 21. Misalignment of Investors
Are your investors all trying to achieve the same goals? Entrepreneurs rarely ensure that their investors are aligned with each other. Whether the reasons are business, structural, or economic, investors frequently have different agendas, interests, skills, and attitudes which can cause strife, and potentially paralysis, as you try to grow your company.
Episode 20. Time Based Vesting
Silicon Valley startups nearly universally use time based vesting of stock, usually over four years. A system based upon performance tied to creation of company value would make more sense than simply measuring “time served.” Because most startups will likely not stray too far from current vesting practices, what are some practical compromises which combine the best of both systems?
Episode 19. Some Startup Math
Entrepreneurs and investors alike sometimes struggle with basic financing math for startups. I present three common scenarios: computing post-money valuation ownership, understanding the dilutive effect of option pools in venture financings, and calculating the purchasing power of discounted convertible notes and the resulting liquidation preferences.
Episode 18. The Fundamental Theorem of Startup Investing
Many entrepreneurs and investors become lost in the wilderness about their goals following a financing round. Using the fundamental theorem will show you how to follow the North Star with a laser focus when you become lost and cannot answer questions about your milestones, metrics, team, use of proceeds, and need to pivot or persevere.
Episode 17. Your Financial Model Tells the Truth About Your Business Strategy
Entrepreneurs frequently ignore the importance of creating financial models and budgets, seeing it as a nuisance task or delegating it. Financials should incorporate specific assumptions about the factors that lead to the creation of value at all stages of the customer journey. Entrepreneurs should rigorously test and replace those assumptions with real data, making the model a living roadmap of the drivers of success. Ultimately, your financial model is the mathematical and economic expression of your business strategy. Are you writing fact or fiction?
Episode 16. Innovation for Social Problems
Tools pioneered and perfected for rapid growth in venture-backed startups also apply with full force to solving social problems. NGOs, governments, educational institutions, and non-profits can and must use the techniques of innovative entrepreneurship to maximize the effectiveness of their missions. And those who not only use the tools, but also create viable business models, can attract substantial capital to tackle the world’s most pressing problems.
Episode 15. Beware of Equity Predators
In the early stages of a company, everyone wants stock, often for services that are never delivered or for value never created. While entrepreneurs often agree to equity deals in the beginning because they lack cash, these deals add up quickly. Entrepreneurs need to measure value, drive achievement, and terminate non-performers, while also recognizing and rewarding outsized value creation.
Episode 14. Reform Stock Option Taxation
U.S. tax rules for stock options deprive startup employees of significant amounts of compensation. Options often expire before companies can go public. Exercising stock, to lock in capital gains rate, is frequently prohibitively expensive or results in tax punishment of the employee, instead of reward. Section 83(b) elections do nothing but set traps for the unwary. Tax policy should promote meaningful upside for the engine of talent that powers the innovation economy and I give three concrete proposals.
Episode 13. Founder Financial Distress
As exits take longer than ever before, startup entrepreneurs often must live on low salaries for a decade or more, awaiting the day their equity rewards their sacrifice. Founders must therefore manage not only their company’s limited budgets, but their own personal ones as well. As a result, financial distress among founders, though rarely discussed, is very real. And it often leads founders to take drastic actions, such as misusing company funds. I have asks for both entrepreneurs and their investors to avoid this largely ignored problem.
Episode 12. Build a Strong Board
Entrepreneurs often resist creating strong, independent boards for fear of losing control, but companies with the best boards outperform those without. You should pick a team with a diverse range of experiences who will disagree with you, but drive toward consensus. Ultimately, who do you want to face the myriad startups crises alongside you? Strong boards mentor and develop younger and less experienced CEOs, which ultimately promotes the cause of innovation.
Episode 11. Think Long Term with Investors
Entrepreneurs understandably want to fight about every term with early stage investors to gain the maximum advantage, which is often the wrong strategy. If you spend time on terms which do not matter or cross certain lines, you show your inflexibility, inexperience, and lack of judgement, which may cause some investors to walk away entirely. Because the relationship with your investor will often last longer than the average marriage, with many of the same ups and downs, you should focus on the long term relationship.
Episode 10. Pricing Early Stage Risk
Entrepreneurs frequently express frustration at the amount of ownership early stage investors take, not appreciating the realities venture funds face to survive and attract investors themselves. Like insurance, valuation of early stage companies without a history of financial performance is best understood as spreading the risk across a large pool of investment opportunities.
Episode 9. Leverage Your Resources
Startups have scarce resources, both in money and time. Successful ones maximize the return on both, usually through leverage. Startups can leverage infrastructure, content, labor, finances, and other assets. You can also create leverage by building platforms that permit other businesses to accelerate their growth, becoming the lever that creates wealth for you and them both.
Episode 8. Have a Strategic IP Program
Entrepreneurs create rich constellations of critical intellectual capital, including brands, inventions, content, and know how, but fail to and gain maximum value from that creation. Every startup needs a comprehensive strategic intellectual property program which not only evaluates and protects core intellectual assets, but also drives future innovation by mapping the commercial and competitive future of current and adjacent businesses. Sophisticated programs can create outsized value and drive the innovation efforts of all companies.
Episode 7. What Can You Release Now?
Many entrepreneurs want to create the perfect product with all the features complete. Unfortunately, this perfectionism often results in fatal delays getting to market. It is more important to focus on what minimum viable products you can release now to begin generating revenue, customer feedback, and proof points for future development and fundraising.
Episode 6. A Top Secret Form of Fundraising
Most entrepreneurs know about raising money from venture capitalists, angels, friends and family, and even from governments and strategics. However, there is a top secret form of fundraising known only to a select few Silicon Valley insiders. It is so secret, it is unknown to most entrepreneurs and many investors. Find out what it is in this week’s Entrepreneur Minute.
Episode 5. Are You Solving Problems?
Customers do not care about your solution; they care about their problem. Have you measured the underserved need? Do you know how your customers solve their problem today? Maybe they understand the problem and potential solutions better than you. Successful entrepreneurs solve the problems others face.
Episode 4. Are You Creating Value for the Right Company?
Successful businesses generate extraordinary value for their customers and users, whether by creating delight or solving a long-standing pain point. In this week’s episode, I want to remind entrepreneurs that their job is not just to create value for their customers, but to create value for themselves and their investors.
Episode 3. Stop Obsessing About Passion, Pitches, and Technology
I have a simple request of entrepreneurs: stop obsessing about passion, pitching, and your technology and focus instead on the actual fundamentals of your business. Investors know what really matters to creating a successful venture-backed business. Do you?
Episode 2. Product/Market Fit Is Just the Beginning
You have a product which has a great user interface. It solves a killer problem that your users feel viscerally and know they have the need to solve. They love it so much they are recommending it to their friends, and they cannot wait to pay for it. You have revenue, growth, and you’re scaling up. Your job’s over, right? Hardly.
Episode 1. Alexander Hamilton: Silicon Valley Icon
Lin-Manuel Miranda made Alexander Hamilton famous as a Hip-Hop Icon because he wrote his way out of poverty, but is he also a Silicon Valley Icon? Were Hamilton alive today, he would be where his tenacity, vision, innovative spirit, and bare knuckles zeal would be free to create without regard to class or geographic background. Today, he would be in Silicon Valley.
Free Sample of Weekly Virtual Office Hours
September 16, 2020
OFFICE HOURS: 3.103 Founders and Early Talent (57:04)
Some questions covered: Should I ask for “single trigger” vesting for a “change of control”? What do some sample startup bonus plans look like? What are the most common reasons CEOs are fired? Why does personal financial stress so frequently lead to CEOs being terminated? What steps should I take to fire my co-founder? How do I treat cash I have to put into my startup prior to receiving professional investment?
July 3, 2020
OFFICE HOURS: 1.101 Creating Innovative Companies (Part II: Lessons 9-15) (51:14)
Some questions covered: Can a founder’s agreement for all founders be dangerous if I have to fire my co-founder? How can I stop a copycat from copying my business model in another country? Can blockchain technology be applied to other problems aside from cryptocurrency and what are some of the risks of “smart contracts” created by computer algorithms?