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Bradley Brown
Updated: 3 hours 59 min ago

A Startup is Like Making a Trip to Each Continent

Sun, 2015-08-30 21:43
Maybe you realize how difficult it is to go from an idea to a successful company.  Maybe you've attempted one (or more) yourself.  Is the American dream a startup?  It is for some, but not all.  If you start a company and you're the only employee and you don't get paid, is your business a startup?  Is it successful?  Beauty and success are in the eye of beholder.  You might hear people suggest you set your sites and expectations lower so you guarantee success.  In fact, you might hear a lot of different conflicting things over your life.  In Founders Institute we call this "mentor whiplash."  One mentor says yes, another so no.  One says go and another says stop.  There's no right way to do most things in the startup world.  Set your own goals - think about your definition of success and strive for it...every day.

One thing I do know is that MOST people need a partner or partners to "complete them."  In other words, we all have gaps (and strengths) in our personality.  Your partners should fill your gaps.  If they don't, your company will have a gap.  If you're a perfectionist, you're going to want to find a partner who isn't.  If you're a detailed person, you're going to find a partner who isn't.  If you don't have any gaps, congrats!  I have many!

So how is a startup similar to making a trip to every continent?  First, when I say startup, I'm referring to a funded startup.  If you're trying to build a lifestyle company (i.e. one that provides a nice lifestyle for you), don't take someone else's money to do this - they will NOT be happy.  If you can build a business on your own and without any money, that's a dream come true for many.  That's not my dream.  So like I said, the basic premise here is that you're building a business that is going to require capital (i.e. money) to get it going.

When do you raise your first dollar?  My preference is to raise money as soon as you can.  In other words, don't spend any more of your own money to start the business than you absolutely need to.  Even if you have money.  Why?  Because in my view, if you can't get someone else to believe in your idea, it probably isn't a fundable idea.

So let's say you start your trip in a rich continent such as North America.  You can get to a lot of places by driving around.  Some might be safe, some might not.  In fact, you can probably get to your second continent without hopping on a plane - i.e. South America.  We could say that's similar to your "self funding" stage of your business.  At some point you're going to have to take off on a plane to get to the next continent.  In the startup world, continents are like "fund raising series."

The first round of funding (continent 1 - North America) is your own cash.  Make this your smallest and quickest continent to get behind you.  The second round (continent 2 - South America) is your seed round.  This is sometimes called the friends and family round.  Get people believing in your idea ASAP.  Get your seed funding ASAP.  The 3rd round, your Series A round (continent 3 - Australia) is a stretch.  It's a long and big flight.  Most companies frankly never get to this phase.  Maybe you're able to go to Europe instead and the flight is shorter.  It's still a long way and you better have the fuel you need to get to that next round.

So yes, if you start in North America, using your own money, you might have a lot of money.  You might have a nice vehicle to get to your next continent.  But at some point, to get to continent 3 of 7, you're going to have to take off.  When are you going to fuel up next?  Are you going to attempt to fly around the entire world without refueling?  Of course not.  That would be similar to trying to raise $1B in your first round of funding.  It will never happen.

Seed round valuations tend to range from $1M to $3M.  If you're a proven startup person and 100s of other "ifs," you're probably not reading my blog, but yes, you're seed round valuation would be higher.  If you only have an idea, you're initial valuation may be $0 and it could be less than $1M.

If you try to fuel up in the middle of the ocean, you're going to run out of fuel and crash.  If you stop in a dangerous place (i.e. the wrong investors, investors who run out of money, investors with the wrong expectations, etc), you could also be extorted for money.  Depending on where you stop, fuel could be reasonable or it could be expensive.  The more you need the fuel, the more expensive it is.  All of this is true in the startup world too.  If you don't make it to the next continent (funding stage) with your fuel (funding), you're done.  If you stop in the wrong place (i.e. you don't have the right metrics in place by the time you get there), your next funding round might not be fatal, but it could be VERY expensive (i.e. a low valuation equal a high percentage of stock you give up for very little money).

It's important to plan your trip (i.e. startup).  It's important that you can make it to the next continent safely.  Where you start is important.  Focus is important.  If you deliver a message like "we'll do that" for everything a potential investor brings up, they will not want to give you the fuel (cash) you need.  What if you pulled into a gas station (called an FBO in the flight world) with $1000 on you.  Let's say the FBO has a casino in it.  On your walk to the casino you notice a bar, so you stop in there.  You go into the casino and bet $500 on black.  What would your crew (your employees) have to say about your behavior?  A bit confused about the goal?  A lack of focus on the goal here?  What would your investors (i.e. the FBO employees) feel about your ability to pay for the fuel?  Have a mission and live for it.  Know what you need to do and do it.

Whatever you do, bet the farm on your focus.  One thing, not 2, not 3.  Don't try to be more than one thing.  Don't fuel up or raise money in the wrong location (i.e. bad investors) or at the wrong time (i.e. middle of the ocean).  Keep in mind that you MUST get to the next continent with whatever you have from your last funding round.  In other words, DO NOT try to raise money $30k at a time.  You'll spend all of your money raising money and you'll end up in the middle of the ocean without any more fuel.  Each round needs to get you to the next round -'s going to be costly or deadly.

Prepare for your trip.  Be ready.  Your investors are your lifeline to the next continent.  Respect them and do what they expect you to do to get to the next round.  If you don't, you both lose - unless they get your company and then they do something good with it.  But that's not what they want.  That's not what you want.  Good luck and safe travels!

Worrying about the 4th Bullet?

Sun, 2015-08-23 20:12
I love analogies that are very meaningful and get the point across.  I often hear businesses talking about different subjects that concern them.  You could say this is similar to the days of the old west where people carried their weapons on their belt and used them at will.  Back then, did people worry about the 4th bullet in the gun?  Of course not.  They worried about the 1st bullet.

So why is it that in business we're often worried about the 4th bullet that's going to kill us?  For example, let's say your business needs revenue, has expenses, is not making a profit.  Should you worry about your legal contracts?  Should you worry about employee retention?  Employee onboarding?  Other topics?

Of course those things are important, but...what's most important?  How do you get to profitability?  More revenue?  Fewer expenses?  More customers?  More from your existing customers?  The 1st bullet that will kill a business is the lack of revenue.

In real estate, the 3 most important things are location, location, and location.  In business, the 3 most important things are focus, focus, and focus (on the 1st bullet).

Focus on the 1st bullet every day, not the 4th bullet!