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Why Start a Company ?
I (Rajat) was a senior at MIT and started my first company with a group of friends. The World Wide Web had just been introduced, and it seemed like there was tremendous opportunity.

I jumped at the chance to start a business, even though I wasn’t finished with college. My journey to becoming a founder didn’t happen overnight, but it didn’t take long, either. I was fortunate enough to work for Intel during each of my summer breaks during college.

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While Intel was and still is an amazing company, I realized quickly that I wouldn’t have the opportunity to make a significant impact. I believed I could do more, but in the confines of a large, well-structured organization, a junior employee would hardly be trusted with critical decisions and work.

I wanted to be challenged and thought I could do much more with the energy and skills that I had. At the time, I realized my only option to create that work environment for myself was by starting my own company.

The Allure of Startups
Many successful entrepreneurs have become household names.
Their journeys and exploits have been written about and movies have put
them on pedestals.

Soon, we’ll have action figures of the most successful startup titans.
Can you imagine a Mark Zuckerberg or Steve Jobs bobblehead doll ?
With the intense interest in these icons and the companies they created,
it’s easy to see why many people want to do the same thing.

Or, at least, achieve the same status.
That status was achieved only after a tremendous amount of work and dedication—most of this glossed over by the media. Apparently, years of long days and nights filled with many successes and a reasonable number of failures don’t make for exciting stories.

In the end, those successful founders each had tremendous energy and passion for what they were doing, and this, along with some brains and a lot of luck, is what elevated them to their superhero status.

Without the curiosity, passion, and drive to accomplish their goals—the internal fire to fill a hole in the market, exploit an opportunity, to do the right thing for their community, or to do something no one else ever has—they would have never achieved their level of success or iconic status.

Nor will you.
Successful entrepreneurs are driven first and foremost by unrelenting passion. They’re internally motivated to create something from nothing. If you’re starting a company because you think it’s cool or fashionable or because you think you’ll make bags of money quickly or even make money at all, you may want to reconsider your motivation.

Think about it, Facebook took about ten years to go from inception to IPO.
We guarantee you that those weren’t ten easy years. Of course, very few companies even reach Facebook’s level of success, and you probably
shouldn’t plan on it.

But, less success doesn’t imply a shorter path unless,
Of course, you don’t make it. Even if you find yourself among the 10 percent who
do make it, on average, you’ll still need about seven years of hard work to get there.
7 And, that’s in tech; other markets can take considerably longer.

In our experience, planning for about a decade is the smart thing to do.
Being an entrepreneur can certainly be fashionable and cool.
But, those things won’t support you when your company goes off the rails
for the tenth time or when things aren’t looking good in year five.

And, the money, well, let’s just say you’ll pay yourself almost nothing—at least initially. One survey of 11,000 founders discovered that 73 percent pay themselves less than $50,000 per year.

8 According to that same survey, 66 percent of founders in Silicon Valley
pay themselves less than $50,000 per year, and a full three-quarters make
less than $75,000

9 As we mentioned earlier in the book, there’s no guarantee you’ll ever become the next Zuckerberg or Jobs, not when 90 percent of all startups fail

10 Any way you cut it, the chances of you making money are substantially higher when you work for someone else. Not that any of this really matters if you have the startup bug.

True motivation only comes from within. If you’re not working to build something
you deeply believe in, then it’s not the tangible returns you receive that drive you.
As Frederick Herzberg, known for his work on motivational theory and management, said, “The bottom line is that none of these things [tangible returns] are motivators.”

11 Why Should You Start a Company ?
Becoming a founder and growing a successful company is hard work
(funny how we keep bringing that up, right?).

We’ve noticed a pattern in those founders who have reached an exit milestone.
Many of them share a common set of reasons why they started their companies in the first place. Virtually all the reasons were deeply motivational on an individual level and were driven by a strong passion for what they were doing.

The reasons listed below are some of the most powerful that we’ve seen, and by many accounts, they give founders the edge when a likely but unexpected twist
or setback inevitably happens. As you read through them, ask yourself if they apply
to you. Do you think they will sustain you through the difficult periods during your startup journey ?

We encourage you to be as honest as possible with yourself when evaluating each one. It might also help to discuss them with someone close to you to validate your thinking.

I’m on a Mission Some people have a vivid vision of how the world should be in
the future and they’re compelled to try and make it a reality. Or, they have a vexing problem that just must be solved. It’s a passion for shaping the world as they see
it could be.

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This may be a shift for mankind on a global scale, a smaller change that alters an industry or even a community, or perhaps it just solves a previously unsolved problem. It’s the notion that you have an idea that must be unleashed, and you’re driven beyond fear to create a new world.

From our perspective, this is a prerequisite. Being on a mission, regardless of how small or large, is what sustains a founder through the dark times, of which there will be many. I’m Entrepreneurial by Nature Being an entrepreneur is more than a job title; it’s a way of life for certain types of people.

Just as many people who choose accounting as a profession have certain characteristics, so do entrepreneurs. For one, there’s a sense of fearlessness despite risks. It’s not that entrepreneurs are ignorant of risk, it’s more like they’re missing the gene that makes others feel worried.

At their core, these entrepreneurs are driven to experiment and to find new ways of solving problems, whether from creating a product or service or a company. Their need to constantly learn and adapt outweighs the inner voice that tells most people to run and hide from a risky situation in the first place.

Entrepreneurs have an inner confidence and faith that if things don’t work out with their idea or company, then somehow, in some way, they’ll land on their feet; they’ll rebound regardless of what happens. They know that the next thing—an idea, a company, an opportunity—is around the corner.

This confidence gives them the fuel to risk starting a company.
When you have these attributes, it makes taking risks—of which there will be quite a few—more palatable and easier. I Want to Be My Own Boss Sick of being under the thumb of the Man ?

Some people do better when they aren’t taking orders or being managed by other people. These individuals don’t necessarily need to manage or be in charge of the office, but they do need to be in charge of themselves.

Starting a company is a great way for you to have the autonomy and independence you need and crave. Yet, if this is your singular motivation,
you may want to question whether it’s enough without one or more of the other drivers in this list.

While this might seem like a good reason now, it might not be quite as motivational after five years of round-the-clock worries. I Want to Have a Big Impact When you work at a large company, it can take many years to learn the business, to make key decisions, or to have a significant impact on the company or the customer.

In large firms (and many medium-size ones, too), your level of responsibility
and ability to move up the ranks is often tied to your tenure with the firm and experience in the field. Many entrepreneurs bristle and rebel against this
approach, preferring to connect duties with performance.

As a founder, you get to skip to the front of the line. (Of course, you also get all the responsibility and negatives of being in charge, too!) From day one, you can have a profound impact on the company.

You can make your work matter in a way that you can’t at larger companies.
I Also Want to Make Money Don’t get us wrong, wanting to make money isn’t a bad thing. It’s just that on its own, making money doesn’t consistently motivate successful founders—not when the sacrifices and challenges of starting and growing a company are so high.

But, when you mix wanting to make money with some of the other reasons
on the list above, then it becomes a powerful tool for success.

For sure, money may not buy happiness, but it’s certainly a nice reward. We run into many entrepreneurs who think of little more than how rich their startup is going to make them.

As we say, this can motivate you for a while, but when you’re in year seven
of your company, and you’re still struggling to reach profitability, venture capitalists won’t return your calls, and you have a new baby at home, then what’s going to drive you to brush off the challenges and continue to charge forward with the same energy you had on day one ?

It’s not likely to be the prospect of making money, at least not by itself. ••• Starting a company can be a life-changing experience. You can change the world and learn while doing it. You’ll meet many people, potentially affect many lives, and maybe even make some money or become famous.

While these are wonderful outcomes, the sacrifices you make when you’re building
a startup can be significant. If, at your core, you aren’t aligned with the personal trade-offs you’ll make when building your company,
then success will be tough to achieve.

But, if you can find a mission you’re incredibly passionate about—better yet, obsessed with—then that will become the fire you need to give the startup
a real chance for success.

If you’re considering starting a new company, ask yourself why.
What is your internal motivation ?
Do you share any of the same motivations that we listed above ?
Do you have other deep desires or goals that you can draw strength from when this path gets rocky ?

If you can find that inner fire, then go for being an entrepreneur.
If you can’t discover any strong motivating factors, then you may want to look for another path, another job, or another career to apply your energy to.

7 Scott Shane, “What Slow Exits Mean to Startup Investors,” Entrepreneur, December 3, 2015, https://www.entrepreneur.com/article/253459.

8 ECOMMERCE GENOME by Compass, “73% of Startup Founders Make $50,000 per Year or Less,” January 14, 2014, http://blog.compass.co/73-percent-of-startup-founders-make-50-dollars-000-per-year-or-less/.

9 Ibid. 10 Griffith, “Why Startups Fail.” 11 Frederick Herzberg, “One More Time: How Do You Motivate Employees ?” Harvard Business Review, January 2003, https://hbr.org/2003/01/one-more-time-how-do-you-motivate-employees.

Chapter 3 3. Am I Cut Out to Found a Startup ?
I (Will) am not a visionary.

There, I admitted it in print. But, that just doesn’t matter when it comes to being a successful founder. In every company that I’ve co-founded, I’ve been part of a team that had at least one person with strong visionary skills. And, that’s what matters. Vision is a critical skill for the team to have.

It’s not critical that everyone has it individually.
I brought my own strengths to the founding teams I was a part of—strong cultural beliefs, management and people skills, the ability to drive execution, and a complete lack of interest in trying to do it alone.

My deep-seated competitive drive certainly helped along the way as well.
I have plenty of weaknesses when it comes to being a textbook company founder,
but I’ve always been part of a team that filled in for where I was weak.

Because I also made a habit of surrounding myself with people who are smarter or more experienced than me, I learned along the way and kept myself from making the same mistakes too many times.

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The First Question
You Should Ask Before diving into the basic principles of starting and running
a company, we want to address a basic question that almost never gets asked,
“Are you cut out to be a founder ?”

Often, would-be startup founders jump into developing their idea and building
a company without taking a moment to reflect on whether they have the personality, discipline, and habits that will help them succeed at the endeavor.

We’re not throwing down a gauntlet here. This isn’t a challenge to step up and be something that you’re not. We’re just recommending that you ask yourself honestly
if starting your own company is the best choice for you.

Just because you want to start a company doesn’t mean you can or should, and it’s better to know this now before traveling too far down the path. Yeah, we know. You’re about to skip this chapter, because you think that questioning your entrepreneurial cred is patently absurd, right ?

But, hear us out. Even if you’re totally equipped to do a startup, you may still learn something about yourself in this chapter that will help you become even better at starting and growing a company.

We’ll introduce you to the basic habits you’ll need as a founder—among them, working smart, being persistent, and focusing on the right things. We’ll repeat the habits in this chapter often throughout the book.

If you take this to mean that we think they’re important, you’d be right.
Honestly, most people aren’t cut out to be founders, and few of them ever even try. Think of all the people you know—college friends, co-workers, relatives. How many of those people do you think could start a successful company ?
Not many, right ?

The long hours, emotional ups and downs, the extreme stress, and humbling experiences are difficult for most people to grasp and come to terms with, let alone actually live through every day. Still, there isn’t one cookie-cutter mold
for a successful founder. They come in all shapes, sizes, and backgrounds.

There are no specific prerequisites to be a founder, including special degrees, education, or even work experience. No Harvard MBA required. We should probably mention a brief definition of a startup founder.

A founder is part of the initial team of people responsible for the creation of
the idea, the transformation of that idea into a real plan to form a business,
and ultimately, the execution of that plan—at least initially. Initially because you’ll soon add people to the team, including other key management members and, potentially, even a CEO (more on these topics later in the book).

A founder is part of the initial team of people responsible for the creation of the idea, the transformation of that idea into a real plan to form a business, and ultimately, the execution of that plan—at least initially. Every founder brings a variety of skills to the startup as well as different personalities, core beliefs, business networks, and, of course, energy.

In fact, by taking advantage of the differences in founder characteristics,
the best founding teams are created. Yes, we said teams, because while it’s possible to be a sole founder, most startups have at least two founders,
and many have several.

In our experience, startups that have multiple founders with a variety of additive skills have a higher chance of success than those with just one founder. Paul Graham, the creator and founder of Y Combinator, a hugely popular startup accelerator, lists having a single founder as the first mistake in his article,

“18 Mistakes That Kill Startups.
”12 It’s not that you can’t build a company with a single founder; it’s just that it’s insanely hard and risky to do. It also makes it substantially harder to get investors to back you and accelerators to help you.

These entities want to hedge their bets, and teams of founders almost always represent a safer investment. “At Beachwood Ventures, we’re rather opposed to investing in single-founder companies—that’s not to say we won’t in circumstances where the founder is a repeat entrepreneur with past success, we just prefer a team with at least two founders,” says Adam Callinan, entrepreneur and venture investor.

13 So, circling back to our question at the beginning of this chapter:
Are you cut out to be a founder of a startup ?
Perhaps the real question you should ask yourself is “
Are you cut out to be part of a founding team ?”

The founding team is a group of founders working together at the inception of a new company. They have complimentary skills and knowledge, are all driven to make the startup a success, and work together well as a group.

The founding team is a group of founders working together at the inception of a new company. They have complimentary skills and knowledge, are all driven to make the startup a success, and work together well as a group. Now that we’ve got you thinking about the idea of a founding team, we’ll discuss the roles that successful founding teams play in the company.

Roles of the Founding Team In the early stages of a startup, the founders do everything. Every day the founding team works from scratch to raise money,
to develop the product, to create visibility, and to sell the startup’s wares.

The amount of progress made is directly proportional to the work the founding group puts in. If the product has problems, they fix them. If there’s a sales call, the founders do the talking.

If there are no more Post-It Notes or coffee, one of the founders runs out to the store. Yeah, founders do everything. Eventually, you’ll hire employees to handle certain responsibilities, however, there are four critical areas the founding team must cover:

Leading the business Creating a strong vision Setting the culture Building the startup team Now, you may say, “Well, surely I could delegate some of those things to the employees I hire.”

Yes, that’s possible, but we’d argue, at least initially, the founding team needs to own these responsibilities, and it’s likely the founders will own them to some degree forever. Each responsibility is just as important as another.

Leading the Business One of the first tests of any startup is who is in charge.
When a group of founders comes together, this can sometimes be a significant challenge. Whether it’s easy to choose a leader or not, you need to have one—preferably a good one ! For the purposes of this book, we assume one of the members of the founding team is the initial CEO of the company.

Most often, that individual remains CEO for the life of the company, but sometimes one of the other founders takes that role, or a non-founder is brought in as the CEO
by the founders and sometimes by the venture capitalists (VCs) funding the company.

Think about how Eric Schmidt was brought on by Google’s founders and venture capitalists. Eventually, one of Google’s founders, Larry Page, took over as CEO.

The transitions and roles worked out well for them. These days, such transitions are in the minority, and a member of the founding team, generally speaking, remains at the helm of the company.

Of course, every company is different, but the view is that a founder has more passion and commitment to the business while understanding the problem space better. We started with the discussion about the CEO because every team needs a leader. Note that leader is singular here.

Very few successful startups have co-CEOs or share leadership in any area.
When you choose to share leadership, two things happen. Every decision becomes excruciatingly difficult, and investors will run and hide when they see redundant roles in the company.

Not only do organizations with co-CEOs frequently fail, but the fact that the team can’t agree on a leader is a bright red flag about its ability to make difficult decisions. Just say no to co-CEOs.

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While the entire founding team is responsible for the successful creation
and development of the fledgling company, their efforts are often channeled
through the CEO. The CEO needs to be a strong leader who possesses a
special skillset that includes: excelling at communicating, negotiating, and
selling the company’s message and position internally and externally.

The CEO will be the primary conduit for all the behind-the-scenes work of the founding team and, later, the expanded management team. Additionally, the CEO will be the primary lightning rod for the company when the road inevitably gets bumpy along the way and everyone wants to find someone to blame.

Vision and Direction The CEO needs to rally the team in the direction of the team’s collective vision for the future. A strong vision is one of a future market, not a market that was or is.

Having a vision is about imagining a broad way to address an opportunity, including
a new product, service, or technology, a marketing methodology, and a sales channel. It’s much more than a kernel of an idea. It’s the path to where you want to go.

Not everyone on the founding team must be a visionary, but, together, the team needs to create a compelling vision for how to solve a problem in a unique way. Moreover, the team needs to coalesce behind that decision.

While some of the founders may not have initially conceived of the vision, they need to own it like it was theirs and, in fact, it is. It’s their company, too, after all. The clear communication of the vision, both internally and externally, is almost as important as the vision itself.

To be successful, a startup needs to explain and sell its vision to others—think investors, prospective employees, potential customers, and partners. While everyone contributes to this communication, the primary broadcaster of it is the CEO. The CEO is also responsible for enforcing the message that the rest of the team sends out to the world. It’s critical that the CEO be good at this.

So much rides on effectively communicating the startup’s vision.
There’s no mandate that every founder be a technical wizard. In the tech world,
many people believe a founder has to be a technical person. But sometimes,
the best founders aren’t technical people; they just understand the market.

They see the market need and a solution, and they’re able to build a team, get funding, and lay the groundwork to build a great company. Brian Chesky and Joe Gebbia, the founders of Airbnb, the home and room sharing / rental service, are great examples of this.

Chesky and Gebbia, industrial designers by trade, were jobless after moving
to San Francisco and couldn’t afford their loft any longer. With a huge trade show in town, there were no hotel rooms available, so they decided to create a bed and breakfast in their own living room.

Without any specific technological knowledge, they recognized a problem, found a solution, and Airbnb was born. Cultural Leadership The Business Dictionary defines the culture of a company as the values and behaviors that contribute to the unique social and psychological environment of an organization.14 In our opinion, that’s too general a view.

Culture guides the team in their everyday work. It’s the foundation on which people make decisions and take actions. Think of culture as a framework for how you want someone in the company to do their job, make decisions, and behave without having to be told.

The sum of all the decisions made and actions taken amounts to success or failure. As the company grows, the vast majority of actions and decisions are made by people outside the founding team, so it’s critical to have the right culture in place before the team expands beyond the founders.

As the company grows, the vast majority of actions and decisions are made
by people outside the founding team, so it’s critical to have the right culture in place before the team expands beyond the founders. Creating a culture doesn’t happen by sitting in a room and deciding what the company will be like.

Culture comes from the core beliefs of the founders, how they act, and how
they treat people. Molly Graham, who ran Culture and Employment Branding
at Facebook, says that companies are built in the image of their founders and that 80 percent of a company’s culture will be defined by its core leaders.

15 We couldn’t agree more.
The culture will primarily mirror the founders and the founders’ beliefs.
That’s not to say the company culture can’t be guided by the founders in
a literal way—building the culture into something they want it to be.
But, it’s unlikely that anyone can create a strong culture based on principles that aren’t aligned with their core beliefs.

That’s also why you hear successful founders talk about having cultural alignment
on their teams. Generally, the culture will reflect who the founders really are, their emotional styles, and how they act day in and day out.

The startup’s culture will, specifically, grow from the actions and reactions
that the founding team has, as well as how they treat people, how they communicate, how they conduct their business (hopefully honestly—no shady or underhanded practices),

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How quickly and easily they step in to help other employees, how they treat the company’s customers, and what they reward people for. It’s leading by example,
but it’s also by making strong statements and proving how the founders back
those statements up with their actions.

It’s creating a set of key cultural points that everyone in the company steps into line with, and if they don’t, then those people naturally get squeezed out of the organization because they just don’t fit.

If, for example, the founding team is generally more open to conflict and public debates, then you can expect the culture to grow into one accepting of people who can thrive in a more argumentative environment.

Timid individuals will likely not fit in. If the founding team is an introspective group that perhaps is more data-driven and focuses less on emotional debates, then you can expect that behavior to become part of the culture. Culture is self-reinforcing after it’s established.

The founding group will hire people that fit, then those people will hire others who
are similar, and soon your culture is established. Building the Startup Team Startups
are created by founders who come up with an idea and lay the initial groundwork for the company.

Most often, it’s the founders who get the early funding for the company, start serious product development, and perhaps even do the initial marketing and selling of the company’s product.

That said, one of the first and most important tasks for the founding group,
after they have enough financial resources, is to hire people to fill in the holes
in skills, capabilities, and other responsibilities that the founding team is too
busy to complete.

Together, the founders and the early hires form the startup team.
This team, as a unit, should have a combined set of skills and characteristic
to optimize the chances of the startup’s success. No one person has all the capabilities that a startup needs, but a well-formed startup team can.

The better rounded the startup team, the greater the chances for success.
Hiring the right people is critical. For most companies, people are by far the company’s greatest expense. Aside from actual cost, the opportunity cost of hiring the wrong person is huge.

If the founding team hires the wrong person, someone they need to fire six months later, for example, for lack of cultural fit or skill, then it’s not only the six months of salary they’ve sacrificed. More importantly, six or more (more because a replacement still needs to be hired and that will take some time) months of progress are required in that particular area.

That lost time can be crucial. Often, early-stage startups may only have one or two people in a particular area of the business. If it turns out that one of those people isn’t a good fit, the company has sacrificed a lot of progress.

So, the founding team must hire people who have unique, additive skills to the organization and are a strong cultural fit. We know hiring is difficult. You have a tight schedule, and funding always seems to be running out. Doing this well is often a make-or-break opportunity for a startup.

The startup team consists of the founding team plus the early hires of the startup—usually those that fill holes of skill, knowledge, or time of the founding team. Together, this group of people will be responsible for accelerating the company and optimizing its success.

Qualities of a Founder Now that we’ve covered the roles that the founding
team needs to fill, we want to discuss some of the personal qualities we’ve consistently found in successful founders.

As we said earlier, there are few people with all these characteristics, and the absence of one or more of them, aside from the combination of dedication and hard work, isn’t likely to keep someone out of the running from being a founder.

Still, the more qualities you see within yourself, the more likely that you’ll find success. It’s important to keep in mind that being a founder is more than a job title; it’s a way of life. It describes a particular type of person.

Generally, people who succeed on this path have certain personality traits, characteristics, and habits, which we’ll detail in this section. Those traits include being insanely curious and passionate about what you’re doing, embracing change for a new future, and with that future vision, being realistic about the opportunity and challenges you’ll face.

Also, knowing whether you’re an introvert or extrovert is a critical part of understanding who you are as a founder. Finally, in this section, we want you
to be aware of the need to embrace the paradoxical nature of day-to-day life
as a founder. Making decisions in the face of conflicting data and priorities is a challenge and one that most founders struggle with.
Does this sound like you?

Don’t worry if it doesn’t. A lot of hard work and an open mind can get you there.
Curiosity and Passion Entrepreneurs see an opening in the market that needs to be explored well beyond the surface level.

Most founders are insatiably curious about the reasons why a gap exists,
why it hasn’t already been filled, and what that says about their bid to solve
that problem. As the business gets going, they continue to stay curious about how their company evolves. Founders ask questions like,

“Why are customers purchasing and why aren’t they ?
Why is the business good at some things and not good at others ?
What causes the customer to disengage at a particular moment ?”
A founder’s curiosity needs to extend beyond just the company’s
products into how to run their business as well.

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Successful founders are students of the companies that have both succeeded and failed before them and quickly apply what they learn.

They actively pursue contacts in their market and the entrepreneurial community to glean all the information they can to help improve their startup. It’s a constant, iterative process that almost never feels like work, because continuous change and improvement is what founders live for.

It’s very hard to build a successful business if you aren’t passionate, bordering on obsessive, about what you’re doing and what you’re selling. Passion is the driver that helps you—as a founder—ensure that tasks are done well. It’s far too easy to do half the job or get to a point that it’s “good enough.” Passion for your company and your customers helps you to go the extra mile.

It helps tie up loose ends, it ensures that your customer is tucked in, satisfied, and content, and it helps when you have that conversation with an employee who has incredible potential but isn’t quite there yet. When you find the passion in your business, it will help you to push harder, to push longer, to perfect more, and to deliver better.

Without that curiosity and passion, the job is more difficult.
Visionary and Open-Mindedness It is definitely easier for some people to see the big picture than it is for others. Having a clear vision of what you want to create for your customers and employees is an important characteristic to possess.

But, rarely does that vision magically appear. It takes work and effort.
It’s relatively easy to come up with an idea to base your company on, but it takes
a tremendous amount of work between founders to morph that idea into
a crystal-clear vision. Your idea is just your starting point.

The founding team must have the patience and fortitude to develop a vision
that a company can be built on. Many entrepreneurs equate their initial idea with
a vision. This is a mistake. A vision needs to be much larger and a more complete version of the idea.

Many founders find this frustrating since they just want to get going, but the ability
to diligently work to create a vision alongside your other founders is an important characteristic of all successful founders. Part of that effort requires that you can clearly define and promote your vision.

This means being a good communicator and even evangelical at times. It also means you need to be open to the ideas and input of others and be willing to change and adapt your vision.

If you are rigid and inflexible, your vision will ultimately suffer, as will your relationship with your co-founders and the customers who provide input to you along the way. As a founder, you need to lead and be vocal, but at the same time, you need to listen and follow. Realistic Despite having grand visions, great founders must also deal with reality.

Managing the emotional highs and lows is difficult, but the founders who can
be pragmatic and realistic about the ups and downs tend to have an easier time dealing with the daily rollercoaster ride of constant change that is a startup.

Realistic founders also can listen closely to what the market, customers, employees, and investors are saying. Many times, these groups will offer conflicting advice or messages, and at other times, the messages given
aren’t what they seem.

Realistic founders have a knack for cutting through noise to extract the important information they can effectively use to advance their company.
Extrovert vs. Introvert ?

When you think of a typical founder, it’s likely you picture someone who is outgoing, loud, brash, and aggressive. Except that’s just a stereotype based on television shows and movies.

Founders and entrepreneurs come in all shapes and sizes. It’s the complete startup team with its additive skills, talents, and traits that matters. If everyone were an extrovert, it would be hard to get anything done as a team.

It’s not only natural that some members of the team will be somewhat introverted; it’s necessary. There are roles in the startup team that are often assumed to be taken by extroverts—CEO, head of sales, and head of marketing spring to mind. Introverts are often perceived to take on areas such as development, support, finance, and others. The truth isn’t so cut and dry.

We see introverts who are great CEOs and extroverts who are amazing development and finance leaders. In fact, we think extroverts who can act like an introvert and introverts who can be extroverted from time to time are at the core of some of the best teams.

We also believe there is another type that doesn’t fit completely within the scale of extroversion to introversion and that is the influencer. It’s actually less important for
a founder to be extroverted than it is for them to have the ability to influence others. True leaders aren’t necessarily extroverted, but they are strong influencers of other’s thoughts, behaviors, and beliefs.

Founders with strong influential skills often become the best leaders in startups, regardless of whether they are introverted or extroverted. In the end, understanding the type of person you are, and the types of people that are around you, is very important when building your company.

You want a complete startup team, so the better you understand yourself and the people around you, the better you can add the characteristics and skills the company needs to succeed.

Competitive Entrepreneurs are competitive by nature.
It’s competitiveness that is usually part of the foundation of what drives them to start new companies in the first place. It’s also a deep motivator that continues to stoke their internal fire when things get tough.

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That’s not to say that the basis of competition is always with others.
Sometimes, they are simply competitive with themselves, always trying to move their knowledge, careers, or lives forward at a fast pace. While competitiveness is part of being a founder, it’s something that needs to be carefully managed.

If the drive to win affects behavior among the co-founders, things can get out of control. Who wants to work with a jerk who thinks they are better than everyone
else, right ?

Being better or defeating another member of the founding team has no place in making a successful founding partnership. Instead, successful founders compete
as a team and help each other grow personally and professionally to the benefit
of the company.

Ability to Manage Paradoxes
As a founder, you’ll find that you’re consistently balancing paradoxes,
i.e., situations that are self-contradictory and have no single resolution.

You’ll be barraged with choices without a clear path, and decisions that have
to be made with little or even conflicting information. While you’ll strive to make decisions that are simply black and white, almost none will fall into either category. You’ll be hit with the problems of having limited tools at your disposal and being conflicted about which ones to use.

And, oh yeah, the decisions and choices you make will probably be critical to the company’s future. Are we having fun yet ? There’s a time to be passionate, almost dogmatic, about your vision, and then there’s a time to be curious when something isn’t working correctly.

Maybe instead of pushing forward, you might have to step back and look into why something has stalled. There’s a time to be a visionary, to know where you want to go, and then there’s a time to be realistic about where you, the market, and your customers are.

The reality is that maybe you need to take additional steps before you can make it to your vision. Rather than taking one giant leap, see and accept that there’s a time to drive your team as a leader, and there’s also a time to pull back and use a softer touch as a manager.

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A founder must have the ability to be a good speaker and a good listener; being a believer in the company and its direction and accepting negative feedback; being a leader who drives the company forward and the manager who knows how to help a team execute on the details.

One paradox that all founders face is making decisions that involve short- and long-term trade-offs. Inevitably, founders find themselves in the position of choosing whether to take some action now, or wait until a later date to do it.

A simple example is delivering the first product to customers.
Is the product complete enough ?
Is the quality high enough ?
Can enough units be manufactured ?

It’s easy to wait to make sure everything is in place and to work hard to make sure you’re ahead on all counts. Yet, waiting leaves you open to more competition, and every day you wait, you spend money without making any money. A paradox.

There is no one answer, and you won’t know if your answer was right until it’s too late to change it. Get comfortable with these, since you’ll face them all the time. You’ll get better at dealing with them through experience, and you’ll be happy you have a startup team around you when you face them.

Habits of a Founder By now, you should have a clearer idea of the personalities and qualities that make a successful founder. Another critical variable is the founder’s basic habits. While it’s normal for each founder to have different habits that work for them and their company, there’s a baseline, a common core, that cuts across virtually all successful founders.

You can still succeed without these habits, but your path will be more difficult. As you read through the habits below, we suggest that if you find you’re missing some, then make sure that others on the startup team have them.

Or, ideally, you should start to work on developing these habits for yourself. Ability to Prioritize Do you know how to best use your time and how to focus
on the most pressing objectives ?

Being able to ruthlessly prioritize tasks is hugely important—we may even go so far as to say “required”—to be successful. As a founder, you will always have a long list of personnel issues, direct responsibilities, and a myriad of things to do that will beg for your attention.

But, you can never have two number-one priorities. A great skill that founders build is the ability to take a set of tasks and prioritize them. It’s incredibly difficult when everything is important and needed right away, but building a constant habit of deciding what is most important is powerful.

There are many ways to think about what the most important thing to do is at any point in time. We like to always be thinking about what is going to move the business forward the most.

Sometimes, that means undertaking a small task to keep a member of the team moving, or at other times, it may mean putting your head down and working on a large project that only you can do.

Whatever it is, make sure you aggressively attack the concept of prioritizing what’s most important to the business at all times. This prioritization habit
takes incredible discipline because it involves saying, at times, “not now”
(or sometimes “not ever”) to employees, customers, vendors, and investors.

The benefits, though, are incredible. If you correctly prioritize your efforts, you will optimize how fast the company moves forward. Persistence You’ll face resistance, challenges, and a seemingly insurmountable number of unexpected problems in your pursuit of starting and growing a company.

Building a business is extremely hard, and you’re told no more often than you can imagine. You’ll also face obstacles again and again. Persistence is what
will see you through these moments, and it’s what will drive you to find the
best path to a solution.

Sometimes, the best path is to ask for help—and that’s OK.
We encourage you to seek help whenever you need it. Other times, the best path is to let go, or to find a way around or through obstacles. When you hit a barrier, and the best path is to forge ahead, will you have the perseverance to push through ?

Will you have the determination to keep banging your head against the wall
until you create a tiny crack that eventually breaks the barrier open ?
Do you have the strength to shed off defeats, learn from them, and keep the company evolving ?

Being a founder is tough, and you’ll need to draw on a well of persistence
to keep going, no matter what you encounter.

Clear and Frequent Communication
Whether you’re a one-man band or you have a team of people, whether you’re an extrovert or an introvert, having clear and regular communication is a powerful habit to possess and develop.

You’ll need to clearly communicate through the written word and in conversations with your customers, teammates, vendors, investors, and others. Communication doesn’t happen just once, it’s an ongoing process. Successful founders have the ability to speak clearly, openly, and directly with the rest of the startup team and beyond.

Effective Execution
Execution is far more encompassing than a singular skill. But, it’s worthy of mention here because the knowledge of its importance and the desire to do it correctly needs to be at the core of each individual on the startup team. The best ideas are useless without good execution.

Well-executed mediocre ideas will beat poorly executed innovative ideas any day of the week. Having an idea or dream about what the company can be one day isn’t enough. You have to sit down, take action, and get the work done. You must follow through on hitting milestones to move the company forward.

This means you need to break tasks down into bite-size chunks and either accomplish them yourself or, more importantly, through others on the team. Without the ability to execute, the startup won’t go anywhere. It won’t grow. It won’t move. It won’t be successful.

But, with the ability to execute paired with a clear vision, your team can be unstoppable. Work Hard and Smart Can you build a successful company by working from 9:00 to 5:00 and taking two-hour lunches ? We suppose it’s possible, but we’ve never seen it done.

Taking a company from idea to a full-fledged operation takes hard work and lots of it. We’ve all heard the idea that working smart trumps working hard. While we believe that working smart is always a good idea, we’re great adherents to the idea that working smart simply opens up more hours in the day to work hard.

It doesn’t change the amount of time worked, just the quantity of work that’s delivered in that amount of time. No one is promoting one-hundred-hour work weeks here,
but we question the chances of growing a thriving company by working only forty hours a week.

Every founder needs to find their own sweet spot when it comes to the hours they put in, and, to be successful, they need to optimize those hours by working intelligently. Sacrifices of a Founder The idea of work-life balance, where someone might spend 50 percent of their time at the office and 50 percent of their time away from it, is a myth for a founder.

Becoming a founder means that life will be unbalanced in favor of the company.
Of course, it’s important to carve out time and to do the right thing for family. Spending 100 percent of your mental, emotional, and physical energy on the company is unhealthy.

But, founders don’t have the same kind of flexibility with time that other career paths provide. If this is your first time starting a company and you have a growing family, then it’s likely you will find being a founder more difficult.

As founders and parents, we often have to prioritize work over our children, spouses, families, friends, and important life events. We make these decisions daily, knowing we’ll never get that time back with our loved ones.

As a founder, you’ll sacrifice more than time and relationships. You’ll also sacrifice money because in the beginning, you’ll likely make very little of it. Then there’s the stress that you’ll experience.

You’ll feel the emotional strain and burden, and the impact it has on your body more than you would if you were an employee.

Research also suggests that the traits that make many entrepreneurs successful also make them more susceptible to strong feelings of depression, despair, hopelessness, worthlessness, loss of motivation, and suicidal thinking.16 And, it doesn’t get easier as the company gets larger.

Being responsible for a hundred people is more difficult than being responsible for three or four. ••• Have we scared you off from becoming a founder yet ? That’s not our intent, but we think it’s important for any entrepreneur to know what they’re getting themselves into. We love starting and building companies.

This work, as challenging and frustrating as it is at times, fulfills us.
It’s more than a job; it’s a lifestyle choice, albeit a difficult one, even when you love it. Before you jump into being a founder, seriously consider whether you can make this.

Before you jump into being a founder, seriously consider whether you can make this your priority. Can you dedicate the required time, energy, and focus
to building a company ?
Do you feel passionate about it ?
Can you handle the intense emotional swings from elation to despair ?
Are you willing to constantly make the effort to learn and grow ?
he founding team will, and should, work harder than everyone else.

The commitment to work hard is not only at the beginning, but throughout the life of the company. Of course, founders have a greater financial and emotional vested interest, so this shouldn’t be a surprise.

Additionally, to be a founder is to make a long-term commitment to the company,
a commitment that is open-ended. While failed startups die relatively quickly, successful ones can take a long time to find a good financial exit.

A significant part of what it means to be a founder and the commitment
you must make is to embody specific roles and responsibilities, including operational and cultural leadership, vision and direction,
and building a great extended team.

This coupled with curiosity, passion, and pragmatism is powerful. And then,
of course, you need to layer on great habits including working hard and smart, being communicative, breaking down walls through persistence, and focusing on the most important items to move the business forward.

If, after reading this, you decide that being a founder isn’t the right path for you at this time, that’s a more than reasonable conclusion. There are alternatives that you might be more interested in now that will help you experience the startup scene without being fully committed to it.

You might consider becoming an early employee at a startup or, for even more flexibility, a late-stage startup (one that is already relatively successful, but is still small and nimble). Both will give you a taste of what the startup life is all about. If you enjoy it, you can become a founder in a startup later.

If you don’t love being an entrepreneur, if this work doesn’t sustain you deeply on a mental, emotional, and physical level, then you’re likely to experience a lot of pain and misery on the path to starting a company. You need to check your ego at the door and ask yourself, “Is it worth it ?” 12 Paul Graham,

“The 18 Mistakes That Kill Startups,” October 2006, http://www.paulgraham.com/startupmistakes.html.
13 Adam Callinan, “Thinking of Going Solo? 7 Reasons You Need
a Co-Founder,” Entrepreneur, November 20, 2014, https://www.entrepreneur.com/article/239945.
14 Business Dictionary, accessed June 18, 2016, http://www.businessdictionary.com/definition/organizational-culture.html.
15 First Round Review, “80% of Your Culture Is Your Founder,” http://firstround.com/review/80-of-Your-Culture-is-Your-Founder/.

16 Ibid. Part 2 Part 2:
Getting Off the Ground Chapter 4 4.
How Do I Know If My Idea Is Good or Not ?

The first two startups I (Will) worked on were both founded on the belief that we
knew the solution to a problem and that customers would see our solution, smack their palms to their foreheads, and beg us for an opportunity to pay us for it.
However, it didn’t work out that way, and, in fact, both companies failed.

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But, by the time I was co-founding Viewlogic several years later, I saw the correlation between involving customers early in the process and the ultimate success of a startup. What I learned, in fact, was that the initial ideas we had for the company were only small kernels of the solutions that needed to be created to address the needs of the customer.

There was actually no way for us to know what to do without involving the people
who would use our products. It seems ridiculous to do it any other way now. Over time I began to understand that this even goes beyond working with early adopters
on the initial product.

Once I began thinking about how to market and sell the product before it was even completed, everything started to work synergistically. Everything started to become easier, including raising money.

An Idea Is Just an Idea If you’ve made it to this section, you’ve decided you have what it takes to start a company—your motivation, habits, and qualities are, at least, all in the ballpark, or you’re committed to working on them.

In Part 2, we’re going to talk about how to get started with building your company. We’ll discuss your idea and the most important tasks to work on in making it a success, how to form your startup team, and how to create your corporate entity.
This first chapter of Part 2 will serve as an overview of what you need to explore and to prove as you start your new company.

We’ll discuss the process you should validate your idea with and then what you’ll need to do to build a company around it. Throughout the rest of the book, we’ll refer to these fundamentals as we go into much more detail on each of these points.

This will be critical to how you execute your plan.
Let’s kick it off at the beginning with the idea you’ll base your new company on.
You’ll likely have an insane number of new ideas about various parts of your business as you start and build your new venture—ideas about the market, your solution, your customers, and the people you’ll want to surround yourself with.

You’ll not only be thinking about the core of your idea, but also about how you’ll get funding for it and even where you’ll be located. For now, though, what we’re referring to is that initial idea from which you’re going to start.

It’s the combination of the unsolved problem that you see in a market, and the solution you come up with to address the need created by that problem.

It’s the hole you’re going to fill and what you will fill it with that we’re talking about. Problems aren’t sufficient to be the foundation of a company, even at the earliest formative stages, nor, conversely, are solutions without a real problem to be solved.

Your idea is the combination of the unsolved problem that you see in a market and the solution you come up with to address the need created by that problem. But first, let’s get this out of the way. We’re sorry to say that it’s highly unlikely you have a unique idea or will come up with one.

The world is loaded with really smart and observant entrepreneurial people. Often, these people are already working on implementing an idea similar to yours and may even have funding to accelerate their progress.
The good news is, none of that really matters.

Sure, if you’re the one-hundredth person to have an idea to meet a need in a well-established market, it’s probably not going to turn out well for you. In most cases, though, after you’ve refined your idea and built a highly differentiated business around it, you can still create a successful company.

You don’t need a great idea. The secret is that it’s not great ideas that make great companies—it’s the excellent execution of a great business model that leads to success. What do we mean by a business model ?

It’s everything you do to make a successful company. From the market you’re in to how you make potential customers aware of what you’re offering to how you sell your product or service and, ultimately, to how you make money.

It includes how your company is funded and the team that you put together to
make it all happen. It’s this complete business model that needs to be strong and differentiated from the competition,
not just the idea that starts the whole process off.

A business model is everything you do to make a successful company.
From the market you’re in to how you make potential customers aware of what
you’re offering to how you sell your product or service and, ultimately, to how you make money.

It includes how your company is funded and the team that you put together
to make it all happen. It’s this complete business model that needs to be strong
and differentiated from the competition, not just the idea that starts the whole process off. Here are a couple of well-known examples of the power of a solid business model.

Apple famously introduced its original iPod three years after the introduction of MP3 music players by a variety of other companies. By the time it came out, there were loads of good, solid, low-priced competitors, let alone an incumbent in Sony with their Walkman series of music players.

Yet, as time has shown, Apple has been hugely successful in music players.
(The iPhone has, of course, taken the mantel from the iPod.) It wasn’t the fact that Apple had a better product idea that made them win; it was their vastly superior business model.

They knew that without a platform for music distribution (aka iTunes) that created an entire music experience, their competitors were merely products without an ecosystem. That ecosystem was the part of Apple’s winning business model—more important than the idea of a music player.

The companies with unique products and poor business models are not as well known because, well, most of them have failed. Kodak is a great example. The company that basically invented compact, portable photography also created digital photography. Kodak had the idea to create a digital camera and developed their first prototype in 1975.

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They then released their first model to the public in 1995, long before any other major player was in the market. Still, they couldn’t make a success of it. Kodak’s business model was all about supporting their film business, and thus, they struggled to make a successful play in digital photography. Kodak went bankrupt in 2012.

Great ideas can’t make it without good business models alongside of them.
So, it’s best if you think of your idea as a starting point to building the business model—a first step in the journey of building your business. All you need in the beginning is an idea that’s good enough and that solves a real problem.

Don’t worry if it’s not all-encompassing at first. That will come later. On your way to your complete business model, you’ll first need to expand your idea and consider how you’ll bring it to life.

You’ll answer questions like,
“How will I turn my idea into a product ?
How will I get access to and excite customers ?
And, where will the idea lead me in the future ?

You’ll start to think not only about the core of your idea, but the bigger, grander problem you’re trying to solve and how your solution to it will morph over time.
That vision, the future of your idea, will be what you test with early, potential customers and ultimately, it will be the foundation of your business model.

Diagram 1: The Path from Idea to Execution
Say you have an idea that the world needs cheap, disposable clothing.
That’s it, the core of your idea. It’s your starting point. From there, you
expand it and consider how you’ll develop it, get your initial prototypes
created, determine who your early customers will be, and how you’ll
market and sell your product.

You might even think about ways to manufacture it and, ultimately, make money from it. These considerations add a big factor to what happens to your idea over time. And, that’s what turns your idea into a vision.

Of course, your vision needs to be tested before you move forward.
Simply put, you don’t have a clue if you can make disposable clothing, if anyone wants it, if you can get funding for it, or if you can even make money at it if you don’t formalize it and test it first.

That happens as you build your business model. The business model for your disposable clothing vision is what you execute to build your successful disposable clothing business. As you turn your idea into a vision and then into your business model, it will morph and evolve.

That is, as you can imagine, the point in formalizing the development of your business model—to make sure you’ve got it right. With each revision (which we refer to as an iteration), you’ll make it a bit stronger, a bit better, and a bit more focused.

It may even completely change as you understand your target customers and market better. In this chapter, we give you the framework for how to evaluate and expand your vision into a business model.

As we’ll discuss in more detail later, we strongly advise that you seek out guidance and feedback from other entrepreneurs, mentors, and advisors to help you make the right decisions along the way.

Your startup team may be strong and well rounded, but there’s nothing quite like the wisdom and knowledge of those who have done it before in making sure you’re asking all the right questions. Coming up with Your Initial Idea We often think of great companies as solely being founded on an idea that came to the founders in a moment of inspiration.

Sometimes, it happens exactly like that, but often, great ideas come from a systematic discovery process in which the founders go out and find their idea.
There’s no need to wait around until an idea hits you. Go out and find the idea
to base your company on right now.

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There are many ways of doing this, but here are three that we see frequently used: Based on a personal need—yours or someone else’s Based on a customer need Through research Personal need.

A personal need, or a passion, is when you or someone you know personally experiences a problem, either at work, home, or in some aspect of daily life, and you wish a solution existed to solve it. After doing some research, one of three things generally happen:

You find there are already good solutions to the problem that you didn’t know existed. Solutions exist, but they are inadequate, expensive, or difficult to procure. Nothing exists that satisfies the need you had identified. In the first case, you can go on and start searching for the kernel of another idea.

It’s almost never worth your effort to compete against established solutions without some fundamental and substantial advantage, and by substantial, we mean that your product is at least ten times better than the existing solution in terms of features, price, or availability. In the second and third cases, though, you may be inspired to create a new or improved solution.

Many businesses have been created because someone wanted something, be it a product or service, that didn’t exist in the marketplace. To address that need, they came up with the idea and then built a company around it. An example of turning a personal need into a business is Dollar Shave Club. The two founders were completely frustrated with the cost and difficulty of buying razors.

After doing research, they discovered they could buy high-quality razors at a very low cost and distribute them via the web. Using catchy marketing and keeping their prices low (it’s built into their name, after all), they established at least a tenfold improvement over existing solutions. They grew quickly and were acquired by Unilever in 2017 for about $1 billion. Customer need.

When you develop an idea through a customer need, it means you’re in touch with a person or company that describes a problem to you or you deduce that there is a need from your interaction with them. Either they have an idea about how to address the problem that they share with you, or you come up with a solution yourself.

In this instance, it isn’t a personal pain point for you, but you realize it’s a problem for a company or segment of the population. Often, the challenges of one company or group of people are the challenges of other people and companies as well and potentially, it’s an indication that there is a problem without a reasonable solution.

We regularly see businesses started by people who interact with a company in one capacity, say sales or consulting, only to learn about a serious challenge in another area of the company, like information technology or finance.

Through these exchanges, entrepreneurs are often exposed to market opportunities and potential customers, which inspire them to conceive of an idea to help solve the problem. They then will go and start a business around the solution.

When Salesforce.com was started in 1999, Mark Benioff, one of the company’s founders and its CEO, was working at Oracle, the large database company.

Benioff witnessed the difficulty Oracle’s customers had installing new software, managing their data, and maintaining the computer systems required to run Oracle’s solutions. Using this experience, he came up with the idea of supplying software as a service (now known as SaaS). In SaaS, the software runs on the supplier’s servers—in this case, Salesforce.com’s computers.

Since Salesforce managed the hardware, software, and data for the customer, the customer only had to worry about their use of Salesforce’s software over the internet. Benioff’s work with Oracle’s customers gave him insight into a new way of solving the problem, and he built a hugely successful company with that as his idea. Through research.

A third way you can generate ideas is through research.
We’ve seen people start businesses because they found an opportunity by reading technical journals, analyst reports, Federal Communication Commission reports,
10-K reports which the US Securities and Exchange Commission publishes annually, annual reports from companies, or virtually any other published material about companies and industries.

Research can also take the form of in-person reconnaissance at conferences or trade shows to see what companies currently offer and to more generally learn about what’s happening in a market. When generating ideas through research, you don’t necessarily interact with people, but rather, you use information that already exists to learn of opportunities.

Unlike the first two ways to generate ideas, your thinking here is neither driven by personal need nor a specific customer desire. This doesn’t mean that research is only a standalone method for coming up with ideas. You should use it to investigate the ideas you come up with through personal interactions, or those driven by the customer need that you identified as well.

A classic example of a successful company created through research is FedEx. Fred Smith, FedEx’s founder, was doing research for a class in college when he came to the realization that rapidly increasing demand for consumer electronics products would create logistical nightmares for manufacturers and distributors.

He recognized that the ability to get products into people’s hands quickly
would offer value that they would pay for. The rest, of course, is history.
Ideas are generated in many ways, so keep your eyes and ears open always.

Just an informal conversation with someone in line at the coffee shop or elsewhere while going through your day-to-day routine can make you aware of new ideas and opportunities.

Read everything you can—even the news can be a resource for opportunities.
Attend conferences and conventions. Talk to your friends and family members.
Ideas abound if you’re paying attention. If you’re at all entrepreneurial, you’ll see opportunities everywhere.

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Vetting Your Vision
Once you have a nugget of an idea and have stretched it into your vision by thinking about how your product will evolve, you need to vet it. Vetting entails a thorough examination designed to refine your vision to make it stronger and better through iteration.

Refining your vision takes a great deal of time and patience. The more you consider it along with the market you’re addressing, the more things will
start to come together.

Be patient with the process. It’s a grind, but you need to go through it.
To start the vetting process, you’ll need to start thinking about your ultimate business model. It’s not sufficient to prove to yourself (and others) that you’ve discovered a problem that needs to be solved.

You also need to prove that the solution you propose can be successful and that you can build a solid business around it. It’s only by proving that you can build a company to back up your vision that you’ll have a solid foundation
for a startup.

Here’s an example. You discover that many people are having trouble identifying why their electric bills seem so high. You think that a device that measures the electricity used by each appliance might be a perfect solution
to their problem.

You work with some smart friends on a solution to the problem by talking to potential customers and thinking through the implementation of the device you need. As you start doing research on competition, though, you realize dozens of companies already offer solutions or have been funded to develop and sell one.
You’re clearly late to the market.

But, while talking to potential customers, you recognize there’s a similar problem with water usage. So, you pivot (a term frequently used when you modify or change your idea in a big way) and start building a business model around water consumption.

In this example, it was only by actively doing research into the initial market early in the process of vetting your vision that you became aware that while your vision was good, it already had loads of competition.

By following the process we outline in this chapter, you’ll be able to get similar feedback and guidance at each step while you’re refining your vision and business model. Frequently, companies we work with skip the process of vetting their vision, and honestly, early in our careers, we did, too.

Often, founders are so eager to get to the actual implementation and funding that they miss the value of the exercise. We get it. It’s certainly not the fun part of building a company.

But, unfortunately, it’s hard to recover from most of the mistakes that occur when
it’s not followed—mistakes that tend to be deep and profound. Non-existing markets, missed competition, expensive sales channels,

inability to hire the right people, customers with no budgets, lack of interested investors, and many other critical elements of building a company are all startup killers that can be avoided simply by spending time vetting your idea and business model.

We think those who have a deeper understanding of their markets, customers, competition, and the overall environment they plan to sell into will have a far greater chance of getting funding and, ultimately, succeeding as a company.

Background research will help you to better understand the needs of your customers, the way to further refine your product to make their lives better, and the type of competition you’ll be up against.

The vetting exercise will also expose weaknesses in your vision. Sometimes, you’ll come up with an idea to solve a problem, create an interesting marketing plan, and develop a strong sales plan. All of this is great.

But, it may be meaningless or flawed until you can dig in to research, talk to customers and analysts, and conduct surveys or online testing to verify your beliefs. It’s like being a scientist with a working hypothesis.

Until you test your vision, you don’t know if it will work. It isn’t until you start experimenting that you can modify and change that hypothesis and, ultimately,
find out if it is correct. The groundwork you lay at this stage will be used later
when you approach investors, hire people, price your offering, and actually
build your product.

In later chapters, we’ll refer to this process frequently when we describe the best way to do these things. If you follow the process we outline here, many of these other efforts will become significantly easier. During this process, you need to keep in mind that you’ll be highly biased in your evaluation of the results at each step.

This is natural since we all think our babies are the cutest.
So, make sure you’re as critical as you can be along the way.
Being your own toughest critic will lead to better results.

Diagram 2 is the vetting process for your vision and business model.
While it includes steps similar to other startup methodologies,
we think its specific combination of actions are the keys to solid and
successful business models.

We’ve talked about what a vision is. It’s an extension of your idea, with both
a problem and a solution, that gets you closer to how you’ll eventually execute your plan. But, at this point, it’s just a hypothesis—your starting point.

The rest of the vetting process is about proving or disproving it. As you read through the steps, don’t be surprised if you can’t answer one of the questions positively. It’s better to find problems now when they’re easy to address than later when they’re much harder.

You might even discover that your original assumptions weren’t valid, which might lead you to pivot. That’s OK, too—better now than later. Remember, it’s unlikely you’ll exit this process after one iteration. For most of us, it takes many.

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Who Are Your Customers ?
Seems like a basic question, right ?

Unfortunately, the answer isn’t always so simple. Sometimes, errors in defining a target market are obvious, like when we run into entrepreneurs who describe their market as “everyone.” Everyone is not the target market for anyone.

More often, the errors in defining a target market are more complex, like discovering late in the process that the people who need or want your product can’t afford it or that you underestimated your competitor’s ability to change and adapt. To minimize such errors, you need to clearly define your customer correctly at the beginning.

The best way to do that is to go out and talk with as many prospective customers as you can. Every market is, of course, a bit different, but from our perspective, you should be thinking of talking to at least twenty to thirty potential customers to start with. After you collect that feedback, use what you’ve learned to create a model of the target consumer of your product.

We’d recommend you do this by creating a persona. A persona isn’t an individual, but a composite of sets of problems, situations, needs, demographics, ages, backgrounds, company sizes, incomes, and geographies treated as if they were the characteristics of an actual prospective customer.

Your persona might represent a company or a department within a company.
The data you use to build one is taken from a combination of people you speak with (building a persona doesn’t replace talking to potential customers), market research, and your best guess about the market, in general.

A persona isn’t an individual but a composite of sets of problems, situations, needs, demographics, ages, backgrounds, company sizes, incomes, and geographies that are treated as if they were the characteristics of an actual prospective customer.

The idea behind using a persona is to help you understand the needs of your market and to verify there are opportunities for your product to fulfill those needs. This becomes especially clear when you enhance your persona by digging deeply to get very specific about their situation.

Go beyond just who your target customer is, to why they’ll buy your solution.
Ask yourself why your target customers have the problem in the first place.
What sorts of things do they do as a person or organization that contributes

to them having that problem ?
What is it about them that makes other options not viable or undesirable ?
Why will they be willing to spend money to solve it ?
If they are part of an organization,

what people in the organization feel the pain of the problem the most ?

While it may seem counterintuitive, you should fight the urge to make the persona general in any way. You want to make it as specific as possible.

Your persona should represent the smallest group of people that will be satisfied with your product. That is, small enough to tightly define your target but large enough to indicate that you have a solid business. Why ?

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Sometimes, just the process of tightly defining a customer makes you realize that few or even none really care about your product or even your vision. If you can’t find a sufficient number of people who will buy what you’re selling, you know that you need to refine your idea.

If there is a reasonably-sized group of people that fit the criteria, however, you know that your idea is providing real value (even if just to a small number of people). You have a group in which you may find early adopters to give you feedback and zealots who will promote your product to others.

Once you’ve established this baseline group, loosen one or two of your criteria in
your persona and see how much you predict your market will grow. Any new customers will represent your immediate expansion opportunities beyond your core, initial customers.

Perhaps that will require a more mature product or some additional features.
To be successful, you’ll naturally have to move beyond the small market you start with. The easier this can happen, the more potential your startup will have.

Make sure you test all your assumptions about your customer throughout this process. The best way to do this is to contact some of the people or companies on your short list—ones that helped you build your initial persona.

You should think through your value proposition (detailed in the next section) before you do this, so you’re not wasting anyone’s time—theirs or yours. The more you know about your target customer, the better the rest of your business model will be.

Understanding the environment your target customer is currently in, including any alternatives they have to your solution—either from competitors or alternate solutions they’ve created themselves—is critical.

If any alternatives they have are reasonable or inexpensive, you may even have trouble selling your solution to them. Understanding the environment your target customer is currently in, including any alternatives they have to your solution—either from competitors or alternate solutions they’ve created themselves—is critical.

Automotive manufacturers are superb at this.
Each vehicle they decide to make has a specific persona being addressed.

They consider economic, physical, and demographic preferences and even create color palettes based on their research of their target customers.

Car companies are large enough to target multiple personas with a range of vehicles, each one specifically created for a target market. As a startup, you can focus on just one. Only when you develop a specific customer model, a persona, and can answer such questions will you know who your customer really is.
What Is Your Value Proposition ?

The value proposition identifies the problem you’re solving, how you solve it, and the benefits of your solution. The big assumption all new founders make is that someone, somewhere, is willing to pay for their idea. But, is that actually true? To arrive at the answer, you have to look at the entire picture.

What will your customers gain when they use your product ?
Will it generate money for them ?
Will it reduce their expenses ?
Will it have entertainment value ?

Will it reduce work ?
You get the idea.

Take the online learning startup, Skillshare, as an example.
Their value proposition is straightforward: Skillshare is an online learning community where anyone can discover, take, or even teach a class. Classes are taught by expert practitioners. There are classes for your career and for your passions.

Learning is on demand. Take classes offline with your phone or tablet—on
a plane, a subway, a park—wherever and whenever you learn best. Teach on Skillshare. Earn money. Share your expertise. Build your personal brand.

They address their two types of customers—those who want to learn
and those who want to teach. For the former, they emphasize expertise,
career advancement, and accessibility (on demand via mobile and offline),
and, for the latter, the fact that experts can make money and build a brand.

Their simple value proposition covers the key benefits they believe their customers are looking for and the value the customers will get by adopting Skillshare’s solution. Of course, Skillshare has quantified the value of what these benefits mean to their target customers.

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They’ve likely used this information to judge whether they are differentiated from their competition and have set the prices for their services accordingly.
Your value proposition will include everything the customer hears, sees,

and experiences with respect to your offering, well beyond just the product delivered. This includes how the offering is marketed, its advertising and positioning, the packaging design, price, and even how it’s sold.

We want to call out one specific instance of a problem that we feel is very important when it comes to considering your value proposition. It’s a problem we run into all the time. If you’re developing a product, is what you’re proposing actually just a feature of a more expansive product ?

Or, if you’re developing a service, is what you’re creating substantial enough to stand on its own ? We’ve seen many companies iterate (which means they go through numerous versions or drafts) on their entire value proposition and business model only to realize very late that what they’re building is not sufficient to solve a large enough problem that makes enough of a difference to the customer.

Their solution is simply not broad enough to warrant a customer’s attention
and money. Unfortunately, this is often only discovered once the startup tries to get funding and potential investors recognize the problem. As you can imagine, there is a lot of effort wasted to only get to the end of the process and find out you don’t have a viable company.

Truly understanding feedback from potential customers will make this
problem clearer very early on, and it will save you from wasting time, energy, and resources that you could have spent pursuing a product that isn’t viable. There isn’t just one way to create value with your product.

You may have a new way of solving a problem, or perhaps your solution is better than what the customer currently uses to address their problem. Maybe your solution is cheaper than other alternatives, or you just might be able to offer better service or support.

Given your target market, any one of these can create value as it’s perceived by your customers. Product-Market Fit After defining who your customers are and outlining your value proposition, you reach a critical gate in our vetting process. Is there product-market fit ?

Basically, the level of product-market fit is the extent to which a good market
(many potential customers) is addressed with a product that meets that market’s needs, wants, or desires. It’s proof that both the problem and the solution have
value to people.

And, when we say value, we mean monetary value.
Will they pay for your solution to their problem ?
That is the ultimate test for product-market fit.
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Will enough potential customers described by your persona buy the solution you’re offering ? One of the most high-profile lessons in product-market fit, or lack thereof, is Pets.com. Launched in 1998, Pets.com was created to sell pet food and accessories via the web, cutting out the middleman and aggressively cutting prices. Sounds like a winning strategy, right ?

Well, not so much at the time. As it turns out, while Pets.com assumed people wanted such a service, the market just wasn’t ready for it. They had the product, but not a market interested in paying for it. No product-market fit.

The company burned through over $300M in about two years and went public before it crashed. It just doesn’t matter how innovative your solution is; if there is no market, you won’t succeed.

The best way to test your product-market fit is to talk to actual, potential customers. Testing your concept like this takes guts, but it’s the only way to learn whether you’re on the right path with the right idea.

Use your connections to gain access to people and offer to discount the product, give them early access to it or provide a similar benefit in exchange for their time. When you’re not delivering a heavy sales pitch, people are often very open to sharing their time and frank opinions.

You’ll want to discuss as much about the product as possible, even parts that you haven’t thought a lot about yourself. You don’t know what you don’t know, after all,
so getting the most feedback you can from others is critical to testing your offering.

Remember that testing whether they will pay money, in the amount you want,
for the solution you’re offering them, is a critical question. The answer to the
“How much would you pay for our solution ?”

question will tell you a lot about your product-market fit assumptions.
The price the customers give you will almost never stand up once you’re ready to sell the product, but you should be able to test whether you’re in the same ballpark.
For example, you might say to a target customer,

“If the price was $150, would you buy this product, which I’ll deliver by May 6 ?”
For some customers, you should even go further and ask who else will have to agree to the purchase.
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This is a tactic we regularly use, especially when it’s early in the process

of vetting an idea. By asking an excited customer about their willingness to purchase on the spot, you’ll learn if there’s legitimate interest in your idea

and a desire to pay for it.

A customer’s readiness to move forward with purchasing your product sends

a strong signal that you may have hit upon an idea you can build a business around. Even if they’re reluctant, their reasons for not moving forward may be even more valuable than their early purchase.

Sometimes, a potential customer who has otherwise been excited about your solution may balk when the discussion of money comes up. Often, there’s a gap between a person saying they like an idea, and their willingness to pay for it by a set date.

If this happens, test other price points and delivery dates to see how their reaction changes. Remember to remain completely open to the idea that you may have an interesting idea, but not one that is worthy of the price you need

to charge to be successful. Many people will tell you that product-market fit

is black or white. You either have 100 percent fit or you don’t.

We don’t feel that way.

Especially in your first loop through the vetting process, it’s likely you’ll find some fit, but it won’t be complete. You may find that the group of potential customers that you add value to is small, or the problem you’re addressing isn’t big enough.
This is completely normal, and because you’re testing this early, you have plenty of time to fix it. Markets are hard to change for any company and, as a startup, almost impossible. Obviously, products are easy to change before you actually build them. Rethink your value proposition to see if the persona you created will be more likely to buy a different product.

Then, go out and test it again with real people.

This is a loop, after all.
You should also consider the market you’re targeting.
Although attempting to change a market in a missionary fashion is close to impossible for an early startup, your idea might have more success in a different market completely.

Remember to be as critical as possible at this point. It’s much easier to change now than doing it later. Keep in mind that product-market fit will also be one of the first things that investors look at.

The more prepared you are to answer their questions and provide proof of solid product-market fit, the better off you’ll be during the fundraising process. As we said, we don’t think you need to prove that there will be 100 percent adoption to move forward. There are still many steps in the vetting process.

You might find that you can further refine your vision as you go through them

to increase your product-market fit. You don’t even need to find 100 percent adoption to ultimately exit the whole vetting process, either.

As you grow and have additional resources (including funding), you’ll be able to shape your product and message to address larger groups of customers. Still, you should establish a large enough group of potential customers at this point through iterating on your vision and value proposition to be able to convince yourself and others that there is a real market for what you’re creating.

Can You Build a Team? We’ve talked about the team before, and we’ll continue to talk about it in detail in the next chapter. However, as you consider whether your idea is worthy of building a business, you also need to consider whether you can build a team that can help you create a product and a company.

A good, well-rounded team stacks the deck in your favor. It’s hard to make up for it when you get this one wrong. With respect to the business model for the specific business you’re trying to build, you need to consider whether you have people who know how to lead the company and build the product you’re proposing as well as the right people to market, sell, and support it.

The value of the startup team was outlined in Tracy Kidder’s book A Truck Full of Money. In the book, Kidder outlines how Paul English, one of Kayak’s (the online travel site) founders put together the key team to build the new company right at the beginning.

The team included English’s co-founder who was previously a VP at Orbitz and two others whom English had worked with previously—one with a broad view of the technology and the other a very strong operational person.

English credits this team with the success of the company. If you don’t have access to the key personnel required to create the company you propose, it’s likely nothing else will pass muster. Without the right people, getting funding for your startup will be particularly difficult, since it’s seen as the most important factor in a company’s success

or failure. If, for example, your new company is going to write the next killer mobile app and no one on the team has ever done that, proving the rest of

your business model becomes nearly impossible.

On the other hand, if your founding team covers almost everything you initially need, that’s great. Still, take a look at this in each iteration of your vetting process. As you refine or change your idea along the way, you may find that your idea has morphed into an area where you no longer have the expertise or experience you need on the founding team.

Again, that’s OK, but you should look at adding any missing skills through your larger startup team as soon as possible. Make it part of your updated business model. Again, investors will focus on this, so you want to make sure you have it covered.
Can You Build the Product ?

For your idea to be viable, you have to be able to build the product.
To know whether this is possible, you need to answer important questions like,

“Can the product be developed at the price the customer is willing to pay ?

Can you overcome any technical requirements that may arise ?
Can you adhere to all regulations and laws
that apply to your product or market ?
Are there any relationships that you need to develop,
say with a manufacturer or another company, to create your product ?”

Obviously, the ability to deliver the product is tightly tied to finding a value proposition that works and building a team to deliver on it. Understanding what it is that you need to create and knowing if you have the experience

or knowledge to do so goes a long way in proving to yourself and potential investors that you can deliver. As with all phases of the business model, the more data you have, the better off you’ll be.

The most important rule of thumb here is to be as detailed as possible during this planning stage. If you have the right startup team, there should be enough experience within the group to make some reasonable estimates as to the effort and time required. If you’re creating a software product, map out the development in as much detail as you can.

If there is hardware involved, add manufacturing and production to the list.
Every product will have a different development process. Make sure you have the expertise in the startup team to reasonably model what needs to happen. One trick that we see successful startups use at this early stage is to focus their thinking on the likely bottlenecks in the process.

Bottlenecks can occur, of course, in parts they already understand, but it’s important to remember that bottlenecks are more likely to occur in the parts they don’t understand. A completely new and unique product will likely have more unknowns than well-established ones.

If you haven’t developed something similar before, seek out guidance from others.Your efforts here will decrease risks substantially in the future. Build a Prototype If it’s possible—and in most markets and with most startup products,
it is—build a prototype.

Try not to get sucked into loads of details, but get something working that you can show to prospective customers for feedback as soon as possible. The prototype should show off the compelling features that differentiate you from the alternatives your target customers have to solving their problem—especially versus your competition. But beware.

Don’t get caught trying to design and develop your final product. Too many startups get stuck at this stage wasting time, money, and market opportunity trying to make it perfect. Your first prototype will not be your last.

As you refine your idea and your business model, it’s quite likely you’ll create new prototypes to validate with your market. Spending too much time on any iteration can be a killer. A prototype is not the same as an MVP
(minimum viable product).

17 An MVP is a minimal version of your complete product that demonstrates not only its functionality, but the entire user experience for the customer (we’ll talk a lot about an MVP in Chapter 10). A prototype, on the other hand, is just a patched-together, working model of the core functionality of the product.

It’s merely proof that you can build the difficult parts of the product and show them to potential customers and investors. For example, say you have a vision of a breakthrough coating for skis that reduces friction tenfold over current technologies. Your prototype may be a block of wood coated with your new material. The MVP, however, will have to be testable by potential customers and visible to your prospective investors.

So, your MVP will have to at least take the form of a ski and be demonstrable in a skiing situation. The bottom line is that building a prototype proves you can do what you say, and it’s a springboard to getting feedback on your product and value proposition from your target customers.

Keep in mind that as you receive feedback from potential customers, their responses will tell you if you’re getting close to delivering on your value proposition. But, if you’re tempted to label the current iteration as final—a complete product—don’t do it. Ideally, you should plan to discard the prototype and apply everything you’ve learned as you vet your idea and business model during a new development stage.

The reason for this is that the fast iteration that you’ve done to roll out successive products has likely created a tower of Babel that won’t be sustainable over the long haul and probably isn’t even a complete product.

Of course, starting from scratch is insanely difficult psychologically. You’ll be under huge time constraints and you’ll desperately want to move forward with what feels like a completed product.

Instead, we recommend that as you pull it together and converge on the finish line with your prototype, you think about the sustainability of what you’ve created—what parts are solid and what need work—and make sure you leave time to refine the weakest areas that you have.

Additionally, and we’ll discuss this later in Part 4, the product you’ve been showing to your potential customers is not the MVP you’ll want to deliver. Your MVP will include documentation, support, and integration with other solutions where necessary, along with many other items.

Again, you don’t need to worry about any of those items now. All you want is to give your target customers something to visualize so you can see which areas of your product work and which ones need greater attention.   

Discovering if the product can be delivered can take a lot of work, but it demonstrates that you’ve thought through the process at a detailed level.

You might be surprised at how many hurdles you run across answering this question. Solving any challenges now will make building your product and company a lot easier down the road. Sometimes, in the end, even the right team finds it impossible to build the product that fits all the constraints in the model.

As we pointed out earlier in this chapter, if you come across insurmountable problems during this vision and business model vetting, or any phase while iterating through your model, don’t give up. Refine your idea and start the process again.
You’ll be much better off for it. How Will You Be Different ?

Differentiating your product is a very important hurdle in creating a business that you can grow. Actually, we’d go so far as to say that differentiating your product is an absolute key to success.

It’s very hard to build a business if you don’t have a discernible advantage. Additionally, it’ll be unlikely you’ll get funding or be able to sell your offering if it isn’t highly differentiated. If this makes you nervous, we have good news for you.
Your advantage doesn’t have to entirely come from the product you create.

As we said earlier, the tendency for many founders is to focus on the uniqueness
of their product, when in fact many great businesses have been built on the uniqueness of their approach to delivering a product to the customer—their whole business model.

Often, we’ve witnessed companies with a mediocre product that have beaten a company in the marketplace with a stronger one, because the company with the mediocre product had a superior marketing campaign, sales approach, great support, or an innovative pricing model.



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