Drinking from a hose
Updated: Jun 29, 2021
Have you ever tried to drink from a hose? Trust me; you will last a max of 15 seconds... no matter how much you drink, more water keeps coming. It's an excellent analogy to what it is like to start and run a successful startup. The onslaught of tasks you are facing is like 'trying to drink from a hose.' Before you have completed one, two more are knocking at your door. Entrepreneurs have this magic ability to focus, prioritize, delegate, and get stuff done - they are always finding a formula to handle the madness that is a startup rocketship.
If you are feeling that way, don't worry... It. Is. Normal.
In the first six months of business, you will quickly realize what you didn’t know and expect to happen. In fact, you very well could spend more time reacting than being proactive. That's why it is so important to build a strong core management team early on. Most of the time, you don't get all the team members right at the first shot. The most important is that you find the two or three rockstars that will have a big impact, and give you time to focus better.
Let's quickly review the three stages of building a company so founders know when they must turn their attention from building a product to building the company. The first stage is getting a product out there that 'works'. That is before product/market fit has been obtained. The second stage is building the user base. That is the period where you, either through organic growth/distribution channels or sales and marketing, build the user base to a level where you are convinced you can build a long-term sustainable business. Once you've built the user base to the point you know you can build a business - only then do you enter the building the company stage. Building a company also means assembling a more extensive management team, beyond the 2-3 core hires that joined you early on.
All this is easier said than done, of course! Convince some great profiles to join your startup, build a product that users love, hit on the gas to get traction (traction is another way of saying growth), fundraise in between (more on this topic in another post soon...), and do some more hiring quickly. This is the world of being a successful startup entrepreneur. I would even say that if it doesn't feel like 'drinking from a hose,' something is not right... Ah! You think it will be better on your second venture? Well, no 🤪 You might raise cash easier, but the startup journey remains the same. It is this adrenaline rush that entrepreneurs love, but hate at the same time. I admire them for their superpowers. It is my job to do everything I can to support them.
It. Never. Stops... The fundraising flywheel.
The lifeblood of startups is growth. If you stop growing at 200%+ year on year, you are just not considered a ‘tech startup anymore’. To fuel this growth, most need to raise cash from investors. Once an investor decides that he likes your company, its space, and its team, they will turn to traction to figure out if it's something they want to invest in. To show continued traction at expected growth levels, you need to invest. The whole process goes in a circle - I call it the 'fundraising flywheel' of the VC game.
A bit more than a year ago, I wrote about the new product-market fit. The key learning was that investors want to see monetization on top of strong user growth, and this at the very early stage already. While I experienced firsthand what it takes to build a B2B business with a couple of millions in annual revenues (I somehow managed to do it myself with my second startup 🙃), the early stages of building a consumer business are even tougher. In B2B, you can hit EUR 1M annual revenues finding 20-120 customers (depending on if you are an enterprise, SME, or a hybrid play), while in the B2C space, you need to figure out how to build a product that 10k-50k people are willing to pay for, and you need to find a way that all these people find you. I am working closely with many consumer companies, and believe me - the latter has to figure many more things that the former has to early on. They are not drinking from a simple garden hose, but a bloody fire hose! On the flipside, once consumer founders figured it out, these businesses are pure magic. They are incredibly scalable (think Skype, K Health, or Sybel, etc.) – they all found a way to build massive businesses sustainably, and this with a couple of hundred employees, at scale. When entrepreneurs, B2B and B2C, go out fundraising, the startup gig becomes 2x harder as you will spend most of your time fundraising, meaning that you 2x your workload (more on running a fundraising process in one of my next posts...).
To survive the early-stage consumer hose, you need to find these sustainable growth channels early on. It is essential to understand the difference between sustainable growth and temporary stimulated growth. Things like gaming Google's search algorithms can temporarily stimulate growth that is not sustainable long term. Investors can be faked out by stuff like that. Co-selling with other high-growth startups is another way that has been done in the past. When we look for growth, we look for authentic, organic, and sustainable growth that is not overly dependent on a single source, particularly a source the startup doesn't control. That takes some experience to detect and understand. But, if you do, magic happens. Such sustainable and organic growth that can continue for five or ten years unabated will produce extraordinary returns. Spotify and Netflix leveraged telco partnerships in a specific way, experience and product marketplaces such as Pinterest or Etsy leveraged social growth through local communities, healthcare players such as K Health work with insurance companies and clinics. Few are the products such as Skype that have a sustainable viral component to it – not to be confused with Hype...
Don't go it alone. There is a path to become a leader.
One of the great joys of the work I do is I get to watch the leaders of our portfolio companies grow over time.
Entrepreneurs come in all shapes and forms, but they all have two traits. They never miss a single opportunity when there is one. They always have good news, even in the darkest times. Also, they continuously reinvent themselves to adapt to the latest challenges. It is these traits that let them cope with the madness of the fundraising flywheel.
I’ve had a number of moments over the last few months where I got off a call or a meeting and thought to myself, ‘wow, she/he’s a new person.’ Growing as a leader takes time, mistakes, failure, feedback, and lots of hard work. You don’t magically show up as the CEO, and you are good to go. It’s not like that at all. The authority to make that call doesn’t mean that you are good at it and that people will line up behind your decisions. It is a process, and like all processes, it requires time and patience. But for those who are passionate and committed to personal growth, there is a path.
Two typical entrepreneur syndromes I see pretty frequently are 'crazy chicken' and 'I’ve got this.' They are natural and are important for hands-on investors to support on.
The crazy chicken is pretty apparent to everyone. The leader just doesn’t seem steady and solid. And in typical entrepreneur fashion, she/he tries out all sorts of things without real conviction. They just hope for a great outcome. They try to figure out things with brute force out while drinking from a hose… The best ones go from crazy chicken to strong, decisive leaders in less than a year. Others need a little bit longer. We need to be fast. Hope, that it will change later on, is not a strategy...
'I’ve got this' is more problematic. The leader acts as they know how to drink from a hose, but they don’t. And everyone around them knows it except them. I like to provide a leader with the 'I’ve got this' syndrome with a lot of tough love. The answer to 'I’ve got this' is usually a failure of some sort. The key is to be there for the struggling leader at that moment, help them get through it, and come out of it with self-awareness, and the desire to address the issues that have gotten in the way.
I am convinced that most entrepreneurs have the capacity to be leaders if they want that for themselves. Sitting at a table and watching a skilled entrepreneur work is quite a sight to see. And watching someone grow into that person is one of the great joys of my work. Here's to the great entrepreneurs out there and their undying passion. Thanks for letting us play a small part in your adventures.
Last week I was in Greece with my team. It is one of the few countries in Europe right now where we can all meet up. We had a tremendous year so far, thanks to our rockstar entrepreneurs. We are ready for H2. I will be in France, Spain, and Lithuania over the next month. Hit me up if you are around!
Life is awesome,
Other content I have found useful
- Two weeks ago, our company Walkme went public on the NASDAQ: WKME. More here.
- A great read by Forerunner Ventures: 'Your CAC doesn’t matter. The brands of the next decade will win with loyalty, not acquisition.' CAC will, of course, matter, and with it more diversified and scalable distribution channels. But, in a world where the CAC of digital channels keeps on increasing, retention and customer loyalty will become ever more critical. Here some thoughts from me on the topic.