Listen To The Article
Guy Kawasaki (@GuyKawasaki) is a special advisor to the Motorola business unit of Google. He is also the author of APE, What the Plus!, Enchantment, and nine other books. Previously, he was the chief evangelist of Apple. Kawasaki has a BA from Stanford University and an MBA from UCLA as well as an honorary doctorate from Babson College.
In his recent talk at UC Berkeley, he delivered the top 11 (top 10 plus one) mistakes by entrepreneurs. His talk was so awesome and relevant that I decided to de-construct it.
The video of him:
1. Multiplying a big number by 1% to show potential market size.
All we have to do is get 1% of the market. This red flag is the flip side of “the market will be $50 billion.” There are two problems with this assertion. First, no investor is interested in a company that is only looking to get 1% of a market. Second, that first 1% is the toughest of any market, so you look naïve implying it’s easy to get.
In fact, any informed investor will care more about these 5 things compared the size of 1% of the total market.
- Market forces of the industry and sector in which it plays
- Balance (or imbalance) between demand and supply of money in the market
- Recency and size of recent exits
- Willingness for an investor to pay a premium to get into a deal
- Level of desperation of the entrepreneur looking for money
(more info: how does an early stage investor value a startup?)
2. Scaling too soon.
In my career, I have never seen a company die because it didn’t scale fast enough. For once in my life, God help me, I would love to have a problem where I advise or invest in a company that couldn’t scale fast enough. That would be – as we say – ‘a high quality problem.’ Dear God, give me this problem once in my career: the company is growing too fast.
IMHO, scaling happens when a startup reaches product-market fit and have a successful (i.e. enough data to show that the models work consistently) sales or customer acquisition model. In other words, the startup have gathered a solid team, decided what to build, shipped v1.0, raised money, and demonstrated that people want the product.
Since it’s sexy to scale (think of it like graduating from university), many startups rush to it. Why this is a bad move?
- Knowing when you have crossed the Chasm: It’s difficult to know when you have truly repeatable processes and you may be misreading market readiness.
- Issues of cash burn and working capital requirement will be amplified.
- It’s much difficult to pivot or retool yourself with 100 person organisation and two layers of management.
Don’t believe me? Check out what these people have to say about premature scaling.
- Forbes: #1 Cause of Startup Death? Premature Scaling
- Startup Genome Report: Premature Scaling is #1 Reason for Startups Failing
- 10 Real-World Things To Consider Before Scaling Your Startup
- PDF on how Spotify scaled while being agile.
3. Obsession with partnering.
Let me tell you something: Partnering is bullshit. There’s only one thing that count in a startup: it’s sales. Partnering is bullshit. You know what, what entrepreneurs should focus on, is sales. Sales fixes everything.
Partnership is one of the business development tool for startups that have reached product market fit. If you haven’t, don’t even think about it. You are still looking for the right blend of customer-value proposition, feature set and business model. Until you have this working pretty well, focus your very limited time and resources on building and iterating the product. Get more sales in.
4. Concentrating in pitching instead of prototyping.
When you show up with a prototype, you have significantly reduced one risk: which is that you can actually deliver a product. Before, with Powerpoint, you had a much lower valuation because Powerpoint is total bullshit – you’re making stuff up for Powerpoint.
The most powerful presentation that you can make to a potential investor is a working prototype that is already being consumed or being subscribed i.e. demo with sign ups.
5. Using too many slides and too small a font.
It’s 10 slides, 20 minutes, and then the ideal font size is 30 points or larger. If you use 8, 10, or 12, you’re going to be tempted to put too much text, then you’re going to read your text, and one slide into the presentation, your audience will figure out: ‘this bozo is reading his slides’.
Kawasaki’s rule is 10-20-30. If you do pitch, don’t use more than 10 slides – you’d be lucky to get that many thoughts across. Only take twenty minutes to deliver them and don’t use a font below size 30. This is the slide template that Guy suggests in his book, The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything (below). (More info: The 10-20-30 Rule, How to Creating an Enchanting Pitch)
6. Doing things serially
The serial world in entrepreneurship does not exist. Unfair as it may seem, if you’re an entrepreneur, you’re going to have to be raising money, writing software, prototyping, selling, recruiting, and collecting money – all at the same time. It is all these paths moving down the road at the same time. It is not a serial process – it is a parallel process. You need to understand that’s how the world works: that it is all about moving multiple things down the road.
7. Believing 51% ownership = Control
This is an illusion: the moment you take outside money, you have a moral, ethical and financial obligation to the outside money. If you cannot deal with that, don’t take outside money. 51% is the illusion of control.
(more info on raising money: How to raise venture capital (without losing your soul)
8. Believing patents = defensibility
If you believe that you patented something, and that’s going to make you defensible, you are deluding yourself – because it takes about 5 or 6 years to file this patent and get it done, and then let’s supposed you do this: you file it, you get it done, and let’s say Microsoft steps all over your patent. So now you have to ask yourself: do you have the time and the money to out-litigate Microsoft? And the answer to that is: no, you don’t – you never will.
In the long run, patent and copyright privilege is dead. Property is that which is scarce. An idea is not scarce, because it can be copied an infinite number of times, without the original possessor being deprived of the idea.. Thus, “intellectual property” is not property at all, but a privilege, granted by the government. If you are in the software field, ideas are worthless. Stop worrying so much about protecting your idea, and focus more on execution.
James Altucher, the one who wrote The Ultimate Cheat Sheet For Starting And Running Your Business, said:
5) Should you patent your idea?
Get customers first. Patent later. Don’t talk to lawyers until the last possible moment.
9. Hiring in your own image.
Many times, companies like to all hire the same kind of people – and when that happens, you’ll have glaring weaknesses: you’re totally engineering; or you’re totally sales; or you’re totally biz dev…I’m saying:make it, sell it, and collect it – that’s what you need. You really need to balance off all the talents in a company. The best advice I have heard on hiring:
Without integrity, motivation is dangerous; without motivation, capacity is impotent; without capacity, understanding is limited; without understanding, knowledge is meaningless; without knowledge, experience is blind. (by Dee Hock, Founder of Visa)
10. Befriending your VCs.
VCs and investors are NOT your friends. I’m not saying you should hate them, ok, but I am saying that it is a business: they are in the business of making money – they’re not in the business of making friends. Angel investors, maybe – but venture capitalists are not in the business of making friends … Don’t believe that they’re your friends – don’t try to become their friend. Just make your forecast, ok – that’s all that they really care about.
Read these posts on why VCs are not your friend (these posts are written by superstars in the startup world, so read up!).
- Steve Blank: VC’s Are Not Your Friends
- Vinod Khosla : Venture Capitalists Are Not Your Friends
- David Heinemeier Hansson of 37 Signals : Venture Capital Is a Time Bomb
11. Thinking VCs can add value to your startup.
Don’t assume that VCs truly can add value. At any given moment, a VC is on 5 to 10 Boards of Directors. They are also looking at companies everyday – they are very, very busy people. Fundamentally what you want from a VC is: money, and you’d want 2 or 3 hours a month of their bandwidth – that’s about it.