The One Thing That Makes Investors Run the Other Way
The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question, “What should budding entrepreneurs know about building a business?” is written by Mark Achler, lecturer at Northwestern’s Kellogg School of Management and managing director of MATH Venture Partners.
One of my daughters was recently thinking about going into the family business and becoming an entrepreneur, and asked for some advice. So I began reflecting on hard-fought lessons I learned from nearly 40 years of starting, scaling, and managing businesses:
It’s not about you
You may be the center of your mother’s universe, but I hate to break it to you: In the business world, you are not the center of others’. I believe in the servant leader model. You need to be as passionately advocating and dreaming about your customer and employee needs as you do your own. You have to know your customers sometimes even better than they know themselves—how they think, what’s important to them, and most importantly, how you’re going to reach them.
I love the word urgency. Once you discover that pain point that is so urgent and acute, why will they trust your startup to solve it? As a venture capitalist, if you want to whisper sweet nothings into my ear, talk from the voice of the customer and have a clear path to customer acquisition. As we say at our venture fund, MATH Venture Partners, it’s all about sales. The greatest product in the world without customers is just a great product—not a business.
Culture eats strategy
The best CEOs define the strategy, bring in the resources, hire the best team possible, and then get the hell out of their way. CEOs are totally dependent on their teams to execute, a lesson that I learned way too late in life.
It wasn’t until I was 50 that I was schooled in culture from the CEO of Redbox, Gregg Kaplan. Back when I worked there in 2009, we had attorneys from some of the larger studios come in one day and threaten to shut us down. Not only did they refuse to continue directly selling movies to us, but they were instructing their distributors to do the same. We were literally at death’s door.
Until we settled with the studios 18 months later, we ended up sending our employees to every retail store that we could find to buy copies of the movies and put them into inventory—each and every week. It was an incredible undertaking and a huge extra effort required from the team. Without the profound belief in the vision of the company and a great working culture, the team would not have been able to rally and sustain that kind of prolonged effort.
Raise money for opportunity—not necessity
It’s really hard to raise venture capital. So many entrepreneurs who do get drunk off their success and lose the focus and discipline needed to manage a profitable business. Today, money is relatively available for many venture-backed companies, but there will be a day when the markets turn and money tightens up. You always want to be in control of your own destiny and not reliant upon VCs or banks to keep your business afloat. Smart entrepreneurs focus on the bottom line—no matter how hard the VCs push to scale the business fast.
The CEO of one of our portfolio companies is a great guy and an experienced entrepreneur who has rung the bell already. Upon completing a large round earlier in the year, I sent him a note of congratulations. He wrote back, “We celebrate revenue and customers—not fundraising.”
Less is more
I believe in simplicity and I believe in focus. When I hear entrepreneurs tell me all of the different ways their product can be used across multiple markets, I run in the other direction and think to myself, “This is a CEO who doesn’t yet know who his customer is.” One of the questions I like to ask entrepreneurs is, “Which comes first—the product or the brand?” In technology companies, the answer is always the product. But how do you know what to build and what features to prioritize if you don’t understand your customer or your brand? Do less. Keep it simple. Fail fast.