Digital Ventures

This is an older post but still valid today, a good lesson on what NOT to do.

1) Multiply big numbers by 1 percent.

Entrepreneurs always ask, say, how hard can it be to get 1 percent of the cans of dog food sold per day? I hear plans along these lines every day. Huge mistake. It is hard to get 1 percent. Plus I don’t think any investor wants to hear that you want to get a mere 1 percent.

Solution: Calculate from bottom up.

Figure out how many people your website can attract, what percentage will buy dog food. You have to be realistic. I have never seen a company meet their financial projections.

2) Scale too fast.

Let’s build all this infrastructure up-warehouses, customer service. Guess what, your rockstar programmers are not going to ship on time. Also, the dogs do not eat the food. So you scale too fast. This is the most common thing that kills companies. I have not seen one company that died because it could not scale fast enough.

Solution: Eat what you kill. Don’t hire customer service etc. until you’ve bagged it. As long as you have a great product, people will put up with poor customer service.

3) Focus on partnerships.

If a partnership forces you to open up your spreadsheet to increase sales or lower costs, OK. But most partnerships are just blowing smoke. Most partnerships are bullshit.

Solution: Focus on sales.

Sales fixes everything. If I could communicate just one thing today, that’s it. When you have sales, your investors leave you alone. Everybody’s happy. You don’t need sand volleyball, free food or whatever.

4) Focus on the pitch.

Most entrepreneurs are so focused on the pitch that they think the most important tool is PowerPoint. The reason for your company is not to raise money. The end goal is to create customers.

Solution: Focus on the prototype.

Very few people are funding the process of creating a PowerPoint on Kickstarter. A prototype and a demo is worth a thousand PowerPoints.

5) Use too many slides.

Solution: Obey the 10-20-30 rules.

Give 10 points in 20 minutes. (When you show up with a Windows laptop, you need 40 minutes to make it work.) Use 30-point fonts. Take the oldest investor’s age and divide by half. Someday, you may pitch a 16-year-0ld punk. Then you can use eight-point type.

In the first minute, explain what you do. Not who you are. Nobody gives a shit. If you need money, it’s because you’ve not been successful so far. I have sat in on so many pitches … I still don’t know what they do. When you make your pitch … don’t tell about your team. Tell this is what we do: “We have democratized design so people don’t have to buy Photoshop and spend weeks learning.”

6) Proceed serially.

First raise money, then hire team, then get sales, then go public. But life is not serial. 

Solution: Life is parallel.

I need to raise money, hire, sell, support all at the same time. Life is a bitch.

7) Retain control.

Retaining control is a delusion. You think if you have 51 percent of the company, you control it. You are a tool, a means to an end to the investor. They want to give you a dollar and make back $50.

Solution: Make a bigger pie.

Have a small percentage of a Google or Apple rather than 51 percent of a piece of crap.

8) Use patents for defensibility.

It will impress your parents. The ideal number of times to use “patent” in your pitch is one. But you won’t win a patent lawsuit against Google or Apple or Microsoft. The exception to this may be biotech, but generally don’t say patents make you defensible.

Solution: Use success for defensibility.

Scale makes you defensible.

9) Hire like you.

If you’re male and white, you hire male and white. If you’re young, you hire young.

Solution: Hire to complement.

If you’re a kid, you need an adult. If you’re a man, you need women. It takes two women to overcome the stupidity of one man. Hire people who are different from you.

10) Befriend your investors.

You think they really like you. That they have faith in you. That is a very tenuous relationship. Accept the role that you are a means to an end.

Solution: Exceed expectations.

As long as you exceed expectations, it will be a friendly and cordial relationship. Analogy is online dating: eHarmony vs. Tinder. In eHarmony, you match your interests and live happily ever after. In entrepreneurship, it’s a Tinder world.

Text source: https://www.forbes.com/sites/roberthof/