Experimental inflection

Inflection 1It’s all about experimentation in a startup.  You are looking for value.  Friends and family are “all in”.  You are the Entrepreneur.  And its about time for you to close that seed funding.  Life is about to be the greatest gambling roller coaster you can buy a ticket for.

You have established your core value by interviewing every one you know and deciding to take the leap.  Later, you will learn never to take friends and family as validation.  But this is your first startup and the future is something of a mystery.  You may have taken classes in school on Entrepreneurship, you may have dropped out,  you could be a Harvard or Standford MBA, but now you’re an Entrepreneur   The beauty of startups is that you are equal in the task at the very moment moment you take on this challenge.  You, are now equal in the mosh pit of starting up.

How you handle your self in this phase will set the tone of your company until the company shuts down or comes to it’s its natural end.  The point of these posts is to prepare you for each step.  You can look back at my Founder to CEO post for an overview of the process, but much like real life, you have to experience each step along the way.

“I like to pride myself on thinking pretty long term, but not that long term.” – Mark Zuckerberg, Co-founder, Facebook

The key take away for any is the multi-dimensional  quality of  business.  Pressures build from one layer to the next and shift in irregular ways through time.  You WILL not have all the answers. You WILL have to prepare for the next step on the fly.  It’s that simple.  There are no set answers.

Experimentation: “Fail fast and fail often”

By building your company in an agile customer focused way, you are learning new things every day.  Or at least you should be.  Investors at these stages are patient and willing to work with the Entrepreneur.  Expectations are low and the demands are insanely high.  Mostly put on yourself through a feeling of passion and obligation.  You have remarkable highs and lows that seem like revelations every moment.  Your first real independent customers come in these times.  You are pushing the limits of your ideas and technology to deliver them.  You start to make the basic frameworks to measure and manage inputs.  You might even high a product manager at this stage.  Most don’t.  the value is building, and you are in the hot seat.

Find value and maybe revenue: “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.” – Steve Jobs, Co-founder, Apple

Your experiences and trial product launches have given you some idea around product value. You have to get it built up and try it out.  The more you do the closer you can get quickly.  Expecting revenue is important but rare to obtain.

When I was at Neoforma inc. in the early days, we had revenue.  One day we had a board meeting and I was presenting my sales plan for the coming quarter.  After the presentation, the board decided the market had changed and it was time to give the product away.  Give it away to iterate and grab market share quickly.  I was in shock, but we did it and succeeded

This experience drove me to understand that value and revenue are not the same thing and you have to choose which things you will measure your success by.  When an experiment has to be so bold it looks like failure, or you have to refund customers to grow your customer base, you have to be ready to discover value.

All in: “You need to be surrounded by good advisers, but you also need to trust your instinct.” – Chris Hughes, Co-founder, Facebook

There is nothing like the first check from friends and family or a see investor.  That simple act of validation and the funding to see your passion grow.  You work is all on you now and everyone is ready to help.  It’s meetings, dinners, introductions and constant iteration on the product.  Everyone is arm and arm and in lock step.  You can call investors with in limits and always get to them.  Its a great time, and everyone is all in.

Seed round: “Don’t be afraid to assert yourself, have confidence in your abilities and don’t let the bastards get you down.” – Michael Bloomberg, Founder, Bloomberg 

The seed round is the investors commitment and that gives them some rights and input to your product.  Your company, and often your life.   It’s time for watching closely and validating the idea.  At this point, the typical failure rates are high.  Everyone knows the game, except the first time founders, and spending more time now can keep the company from stalling out.  The idea is “shopped” around by the seed investors and there is shared risk as the investor is often using personal funds.  It’s a great time to sit by the fire and talk about the future glory.

Funding and building teams for that A round:  “What do you need to start a business? Three simple things: know your product better than anyone. Know your customer, and have a burning desire to succeed.” – Dave Thomas, Founder, Wendy’s

Then comes the first subtle inflection points as time marches on.  Once you take funding, you are constantly fundraising.  Never forget this.  It will a critical part of your story.  You will have to start listening to your seed investors as they line up A round investors for your big idea.  They are motivated to do this because it raises the value of their investment overnight.  You want the investors to be your partner and insure you don’t run out of cash.  Having them shop your idea is a force multiplier   Use it.  Build your team as you go.  You might have co-founders and can’t afford more new hires until the A raise.  No problem, start to focus on how to build your core team and what each person will to with each new hire.  Focus on how you can shift from experimental mode and start looking at the next stages and prepare yourself for it.  Let go of this stage to grab the next.

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