Focus on winning, not competing
Updated: Sep 21, 2021
It's wild out there. The world is awash with cash. It dominates the minds of the startup world players, VCs are raising bigger funds, and founders want more cash and higher valuations. Everyone and everything is investing. And, it seems as if the music will keep on playing for some more time... Don't get me wrong. Raising capital is always hard and time-consuming, and if you manage to do so, you are clearly doing something right.
I am a founder - so this must be good, right? Well... yeah... just make sure you understand everything that comes with this bull market, and that you play the game smartly. We talked already about the risks of raising too much cash for founders and investors (see here) and the DNA of good funding rounds before the summer (see here). But, lately, I feel to have spent time with (too) many founders where this mania seems to impact their focus and business. My message is always the same. The only way to win is by building a great business and organisation first. Everything else is secondary. This post will attempt to make sure we do exactly that. Or, as the Irish mix martial art legend, the 'notorious' Connor McGregor, puts it: 'Winners focus on winning. Losers focus on winners...'
From Opportunities everywhere to Competition everywhere...
As the name of this blog suggests, the trait I admire most of successful founders is their ability to turn a challenge and loss into a win. You take a lot of losses as a founder, especially early on. Investors pass on your funding pitches, people pass on your job offers, customers pass on your sales efforts, you miss critical ship dates, competitors take your customers and your employees, and on and on and on.
There is A LOT of Noise. Kill It.
With a lot of money comes a lot of competition. Ha! There used to be a lot fewer venture-backed tech companies, fewer raised a lot of capital, and fewer were chasing the same clients and employees. But, you know what. The world is also a much bigger place with many more smartphone owners, digitized enterprises, tech investors, and a global talent pool to hire from.
However, the things that do never change are time, the value of an epic product, and the value of your early employees. Like every long-lasting foundation, businesses are built one brick at a time. While it seems comforting to have a lot of cash (of course!), it can only help to a rather limited extent when it comes to these three points. To win, we need to weigh the potential upside of more cash today (we need to look at our budget and assess the potential impact) against the potential downside of too much of it today (see here). This is the exercise we do with all our teams. If you do so with an open and critical mind, the outcome is fabulous: It kills the noise and makes everything so much clearer.
From Competition everywhere back to Opportunities everywhere...
When I walked in the streets of Paris last week, I realized how many local businesses have competitors literally right across the street. Clearly, competition is something you can learn to live with and still operate successfully. In fact, there are some very good things about competition. And there are some challenging things. This post will attempt to outline both.
1. Customer acquisition: Product wins. Just make sure you have a seat at the table.
I had a chat with the CEO of one of our portfolio companies last week. And we were talking about how the sales team dislikes competition, but the marketing team sometimes appreciates it. That gets to the heart of the pros and cons of competition.
Focus on building the best product.
When your company is competing for a piece of business, and you have a tough competitor in the mix, you can often lose the business. The sales team, which is compensated directly on revenues, hates that. The best way to win here is, of course, by having the best product. This doesn't necessarily mean more features, but a product that gets the job done best. Finally, you need to sell the product and make the clients want to work with your team.
In the very early days, I'd argue that cash is helpful to hire more and better product people. But is money really the key driver for the type of passionate people we are looking for, or shouldn't we incentivize them with more stock options? As explained here, most sales are and should be led by (one of) the founder(s) in the early days. Hiring good account managers takes time, and by then, if your product works with first great clients, you will be able to raise more cash on a valuation that makes sense for everyone. Finally, being a smaller organisation with less cash raised in the early days gives you more flexibility regarding pricing. Revenue expectations are less high, and you can throw all your energy at onboarding these clients and build the product.
Make sure people can find you.
But when your competitor spends heavily on marketing its offerings and identifying the pain point both your company and their company solve, that is good for you. It is very hard to build a market all alone. It generates additional demand (and eventual acquirers of your company), and some of that demand will come your way. The marketing team, which is always trying to do more with less, loves that.
Our challenge here is to make sure customers find you. In the B2B space, finding a great marketing person is freaking hard (at least in Europe) and takes time. I usually recommend focusing on three things: Hire great lead generators, concentrate on content creation for the communities you are active in, and make sure to be an active voice in these niche communities. Finding people to help you with this is not too expensive. If you are visible and proactive, great clients will see you as well. They all do their market research to make sure they find the best product.
Finally, there is nothing quite like a competitor to fire up a team. I've seen many companies start to coast a bit after successfully taking control of a market. Then a pesky new competitor enters, takes some business from them, and then all of a sudden, the team is fired up again. All in all, I'd rather see our portfolio companies have competitors than be the only participant in the market.
2. Recruitment: Everyone wants more, not just the founders and VCs
Competitors are a pain and make operating a business harder in many ways. The most important one being hiring. Everyone seems to want more, even if they are in love with your vision. If you are convinced that you need more capital to hire key people, discuss it with your investors. I am always open to this argument if it helps to accelerate the business in a controlled manner. Raising cash for the sake of raising cash is just bad, and I will never fall for that. Satisfying a crucial business demand (e.g., onboarding key enterprise clients) are needs I like to back.
Last but not least, discuss stock option plans with your existing and future investors. They are so much more effective for hiring, incentivizing, and retaining the right talent in startups.
3. Fundraising: More, more, more...
Competitors will also impact your fundraising and exit plans. When you have a competitor raising capital, it will often cause an entrepreneur to think they need to raise capital to compete. I don't believe that is usually the case, but it is hard to convince an entrepreneur otherwise. It just demands a lot of confidence from entrepreneurs (and investor support) to play the long game. That said, competitors will compete with you in the capital markets and the M&A markets. If an investor puts money into your competitor, most likely, they will not invest in your company. If a big company buys your competitor, most likely, they will not buy your company. This kind of competition is particularly anxiety-infusing in the minds of entrepreneurs. But, as I said before, the world is a much bigger place than it used to be, and if your product is epic, you will do just fine.
Most importantly, the higher the price, the higher the expectations from your backers, obviously. Raising too much capital puts your team and company under much pressure, which can have the opposite impact if you are not careful: not faster growth, but less focus. Let's concentrate on winning instead and building the best company, brick by brick.
Finally, it is all about the first people you hire and who you take on as investors at the early stage. If you want to work together, you will figure something out. If not, more cash might be (sadly) the only alternative...
4. Competition. Make sure it makes your company better.
In general, very few companies will operate in a market for long without competition. Not today, nor tomorrow. Imitation is the greatest form of flattery. So be prepared for it. Make sure everyone on the team knows that competition is both good and bad. Sharpen your elbows, make sure you have a product roadmap that will make you win in the mid and long term, and get ready to play tougher in the market. Get ready for cheap shots and lost opportunities. But, most importantly, make sure competition makes your company better.
Some friends invited me at the end of August to the Itria Valley in Puglia. This southern region of Italy has gained some popularity among foreigners recently. A bunch of influencers must have promoted it or so. But, I have to admit - it is a magical place. The region's trademark are the trulli, houses that were generally constructed as temporary storehouses or as permanent dwellings by agricultural workers. They are all over the area. Below a picture of the biggest trullo in the world. It was built in the town of Alberobello, where whole districts contain dense concentrations of trulli.
Life is awesome,
Other content I've found useful
- Our company Adverity raised a $120M round, led by Softbank. Over the last years, Adverity established itself as the market leader for data-driven marketing analytics solutions. This is only the beginning. A great and hard-working team, in a huge and growing market - the kind of mix that breeds success.
- A cool tweet on why people are willing to pay for and want to own NFTs, a unique digital asset whose ownership is verified by the blockchain. The author argues that provenance is the only thing that matters (provenance is where it came from, who owned it, etc.). With roughly 1 million people owning an NFT, the space feels still early, but it isn't that much. There is still a lot of friction for the mass market to access this new asset category. Once removed, it will be interesting to watch how this market opportunity unfolds.
- Another cool tweet, this time by Chris Dixon on why 'Web 2’s take rate is Web 3’s opportunity'. It articulates well the key promise of blockchain-based applications: by cutting out the middle man, both sides of transaction-based platforms get a much bigger cut of the value exchanged on a platform.