What Entrepreneurs Really Need (and It Isn’t Funding)

Avoid the trap of “I believe, therefore I am right”

I recently saw data from Y Combinator comparing what founders consider their biggest obstacle, then contrasting that with a list of the things proven to grow companies fast (what you really need). To be clear, high growth is all that matters when it comes to proving product market fit. Nothing says “people need our stuff” like hoards falling all over themselves to obtain your product/service.

What you think holds you back:
1. Funding (from investors)
2. Bug fix  (make it work better)
3. Design (make it easier to use and pretty)

What actually holds you back:
1. Launch (get product to market)
2. Design (make it easy use and pretty)
3. Pricing (create consumer surplus)

Remember, high growth covers a multitude of sins. 

Short on cash? Sell more.
Product buggy? Get code fixes to market now.

Alternatively, Failory did a study  that patterned start up data  to identify why some fail and some succeed. The 4 reasons for failure generally fell into four categories:

  1. Incompetence – lack of planning
  2. Inexperience – lack of product know-how
  3. Inexperience – lack of managerial skills 
  4. Personal problems – you’re a hot mess.

The worst thing you can do, is say to yourself, “I believe, therefore I am right.”

Note, three of these categories are, by definition, items that founders may lack and fall into the false premise, “I believe, therefore I am right.”

We see many founders who fail to identify that they are in one of these categories. Successful founders know that they are always one or more of these, and fill their gaps by building a diverse team that is united and motivated around common goals and vision. It takes humility to assume you know nothing, and build a team with the skills to succeed. And humility is what you really need.

Humility will help you get MVP to market faster because you know it will never be perfect. Humility will make the product better because you will not assume you know what the customer wants and will listen to them. Humility will help you to identify who you need to execute your vision, and inspire them to follow you, especially when times are tough.

In short, develop your company with humility, so you can grow with confidence.

Beware of the Startup Industrial Complex

Three rules to avoid getting scammed by advisors.

As an early stage VC, one of the saddest things I observe from meetings with founders is the toxic and pervasive influence of what I call the start-up industrial complex (the SIC).

The SIC is a universe of charlatans and blissfully unaware “advisors” who masquerade as help for early stage companies and, in fact, set them back or bleed them dry for the personal gain of the advisor. There is an almost infinite number of people desperate to take money out of the entrepreneur’s pockets, so I thought I’d write a post about how you can identify and protect yourself from the posers and in the process learn how to identify real help that is there for you.

SIC members usually ask for cash upfront to perform tasks for start-up companies. It may be they offer a so-called, proven method to develop fundraising decks (laughable, when you can get the best advice free from YC), or perhaps an introduction to a prospective investor or customer. Regardless, the first warning sign that you’re among the SIC is when they ask for cash upfront to “help” you.

Rule Number One: the best help for start-ups comes from proven leaders who don’t need cash from your seed capital and genuinely want to help ideas they believe in. 

Another red flag is when a SIC member asks for equity in your company upfront, without any performance vesting standards. For example, “give me 5% equity in your company and I’ll give you advice and allow you to use my face on your slide deck to raise money.” This is a bad deal for you, if you take it.

Rule Number Two: when giving equity, it should always vest over time for performance tied to measurable goals such as sales or results that move your KPIs.

Most SIC members are either burned-out, serial founders who never got an exit, or someone who had a senior management position in a large, mature company. Both types of these people have experience, but they don’t have the experience you need. Failure can be a good teacher, but founders who have not gone through the full process of start-up to exit may just repeat the same failure lessons, and share their mistakes with you. Similarly, big companies may be good at what they do, but the people who work in them are not familiar with the effort and methods to create and grow something from scratch on a small team with a limited budget. Many of these people have good intentions, but they just don’t speak start-up, and are more dangerous when they think they do.

Rule Number Three: Seek advice from people who are either successful founders or VCs, better yet, someone who has done both.

Founders, we love you and want to see you succeed. So beware of those who come looking for cash, free equity, or have nothing to contribute to your future success. The SIC is real, spread the word and beware!

Is Your Start-Up Struggling for Sales?

The more non-price barriers disappear, the more customers will say yes.

Struggling for sales? One of the things entrepreneurs often don’t consider is the price customers actually pay when purchasing. While price is obvious, there are several less obvious costs to your customer when they acquire a new, shiny thing. Economists call these non-price expenses switching costs and categorize them into three buckets:

  1. Time cost
  2. Effort cost
  3. Psychological cost

Here are a few examples of these costs you need to consider:

  • Training costs required in order to fully use a new product or service, for both individuals and companies
  • Disposal costs related to their current product or service, and perhaps even the future cost of disposing of your product or service
  • Mental cost of a purchase, time to complete a transaction, like when you have to click ten times and fill-in redundant or unnecessary information to make an online purchase
  • Integration costs with current business systems or consumer lifestyle, such as legacy database usage or accessing personal libraries online in other applications
  • Emotional costs related to any change, such as losing a friendship with a rival sales person, or parting with another product where there exists sentimental value to the customer
  • Finding cost if your product is hidden in the back of a store, or on a shelf top

If you want someone to purchase new product or service, you need to help the customer reduce or eliminate as many of these costs as possible. For example, Amazon.com introduced one click purchasing precisely because it lowers the time, effort, and psychological cost of an online purchase decision. They made it easy to say yes.

You can make it easy to say yes too. Get together with your team, your family, and friends and brainstorm ways you can automate training, disposal, integration, and add features to the purchasing process to eliminate any form of stress to the person making the purchase decision.

For example, if you’re replacing a legacy product that is bulky, providing a free disposal service for the old unit can make saying yes easier. For B2B SaaS, perhaps making the integration free or one-click automated to the customer. You get the idea?

The more these non-price barriers disappear, the more customers will say yes.

Do you have any pro-tips for entrepreneurs on lowering switching costs? Feel free to share your ideas and creative tips in the comment section.

What’s the Deal With Sputnik ATX?

Author’s Note: Updated for New Program Information on Nov 13, 2019.

The number one question on most people’s minds when they meet either Oksana or myself is, “what’s the deal with Sputnik ATX?” So here it is.

Sputnik ATX is named after the first thing man put into space, and the town that we love. Combining visionary insight and engineering excellence, sputnik-1 changed the course of human history and inspired billions of people to continue to look up. Like sputnik-1, we believe that maker/engineer humans should continue to launch transformative ventures. We want to back those founders with investment dollars, resources, and advice.

In short, we want to get you from the hockey stick heel to the toe faster. Here’s how we do it.

The Sputnik ATX program couples $100k in investment with a 13 week, resident, “heck-on-earth” rigorous experience to immerse you in the process and learning required to grow your company, increase your network, expand your vision, and deliver product-market fit faster. We are laser-focused on helping companies to:

  • Find product-market fit
  • Master the sales process
  • Become scalable

We require all applicants to have minimum viable product (MVP) and at least one customer. We don’t care if that is a paying customer, you just need someone who isn’t your cousin Larry, and prefer disinterested, third party users. This is because it is impossible for someone without MVP to fully benefit from our program.

We provide all cohort members with

  • Six months office space for the founders, and limited space as the team grows
  • $100,000 in cash funding via our SAFE note
    • funding on our friendly SAFE note with a $3mm cap and 30% discount
    • Option to invest additional $250,000 during the program (you may need it)
  • Curriculum, advice and mentoring, two things we work very hard to improve and our alumni rave about
  • Tons of freebee credits from AWS, Microsoft, and the usual suspects
  • Fully stocked kitchen, yeah, you’ll be working late eating frozen burritos, a potpourri of yogurt and “gourmet” ramen as far as the eye can see
  • Mentor and investor introductions (our network rocks)
  • The fridge of joy (you have to see it to believe it)
  • The opportunity to win the #tractionhorse (check Twitter on this one)

For every dollar you get in cash from us, we have more than a dollar of overhead to support you, so we think our deal is pretty good.

We’re not for everyone. Indeed, there are many good accelerator/incubator options in Austin and depending on the stage of your startup and what you need the most, we may not be a good fit. So please understand what we do, and if we’re a fit, apply. I hope to see you in an interview soon.

 

Five Questions Every Start-Up Should Ask About Accelerators/Incubators

First off, and full disclosure, I operate an accelerator program (Sputnik ATX) and have strong opinions on this subject as a participant in the “helping startups” market. I put that in quotations, because, as I’ll expound, there is a start-up industrial complex that is designed to fleece novice founders from their seed capital with predatory fees, terms, etc. Also, I’m going to start just writing accelerator, because writing accelerator/incubator over and over just reads poorly.  OK, enough with disclosures. Read on!

If you’re a breathing human, you’re confused by the veritable potpourri of accelerator and incubator options clogging your inbox. Need help evaluating which one is right for you? How to know which one may or may not help you out? I’m here to help. Here’s a list of questions you should ask to see if your start-up benefits from a program:

  1. Does the accelerator write checks or take checks?
    Accelerators that give money, usually as equity investments and sometimes as a grant (whoo-hoo if you can get it), are often those who have real “skin in the game” and want to align their interests with the founders. They’re willing to put their money where their mouth is, and back your company. It is important to also ask how they help you get your next check. Some, like Sputnik ATX (yea us!) also write follow-on checks and will lead or participate in seed rounds or A-rounds beyond the pre-seed investment typical of most programs.
    Programs that do not write checks to the start-up may also be helpful, but you should expect them to add a lot of value in other ways if they are asking for money or even equity (yikes), without making an investment. For example, it may make sense to give up a few points of equity or pay a fee if you have very high confidence that the program will help you double sales, get major traction, or something else that is material to your success, and not just helping you prepare a nice pitch, some simple introductions, etc.
  2. Does the accelerator help me do something I can’t do for myself or speed up a hard thing?
    Good accelerators identify and invest in companies where they can add value and have experience to offer the founders. Ask the accelerator how they’re going to  help you, and be specific. If they can’t tell you how they can help you solve a tough problem or complete a hard thing, move on. Too often, startups believe that just getting into a program will raise their profile, and so they sign up for something that wastes time and money doing things they could have done faster for themselves. It is OK to recognize that a program isn’t going to accelerate you as advertised. One program here in Austin that really does this well is SKU, an accelerator to help CPG start-ups. SKU has a focus niche where they have deep expertise and networks that help companies get onto store shelves, something that is quite hard to do without the industry know-how and experience.
  3. Is the program just trying to get me to buy something?
    What I mean by this is some accelerators are just trying to sell startups other services, and offer little in the way of help. Good accelerators don’t see you as a customer, you’re a partner that they want to help. A generative relationship should exist between the startup and the accelerator, where the accelerator is spending its time helping you to succeed. If you’re just there to buy products and services from the “accelerator” then the program may just be a marketing channel used by a business to sell coworking space and other advisory services to start-ups without offering much value added. Some coworking spaces may have excellent accelerators, and you’ll only know if they’re awesome when you compare the cost of the required stuff you’ll buy versus the benefit from the space and program.
  4. Is the program merely providing free access to services I can get elsewhere?
    Some accelerators take equity in exchange for providing services like desk space, credit on cloud services, or “free” consulting. Let me address some of the more common services one by one:

    • Desk space – if you have a place to sleep, you have an office. Giving up equity for a desk is a sub-optimal business decision. If you really need a desk, drive Uber/Lyft for a day and use your earnings to pay for that workspace without diluting your equity. As a bonus, you might meet a cool VC while driving (I met a cool company or two this way, the founders pitched me while driving).
    • Credit on Cloud Services – accelerators get this free from Amazon, Google and Microsoft, so they’re not paying for the perk they offer you. Plus, if you attend some of the Amazon, Google and Microsoft cloud events, you can get this same perk for free directly, without selling your soul.
    • “Free” consulting or advisory work is garbage. Advice should always be free to founders. Anyone who has successfully founded and exited a start-up will usually help you out for free because they know how hard it is to launch. Anyone who needs a paycheck from you is not legit, and is usually someone who is preying upon start-ups to make a living because they failed to do so as an entrepreneur or flushed out of corporate life and have no clue how to successfully start their own company (or they’d be doing it already). For this reason, Techstars has a policy of not permitting advisors or partners helping companies in their program from charging any fees to the company while they’re in the program. If they have value, prove it first. A good policy.
  5. What do the program alumni have to say about its worth?
    Ask program alumni companies if it was worth it, and then ask yourself if that company has a credible opinion. For example, someone may say a program stinks, but may just be blaming the accelerator for their own business failure and faults. On the other hand, if a successful founder who built a nice business tells you the same program didn’t help them that much, that opinion has more gravitas. Then, find out why it did or didn’t help them, to better understand if the program will help you

Overall, take some time to learn more about the program, how they add value (if at all), and if that value is what you require at this time. If the value is there, then ask yourself if the cost is worth it.

There are some great accelerators out there, so go find the one that works for you.

What Defines True, Artificial Intelligence?

To create a truly self-thinking, self-aware intelligence, not just a complex program that fools man’s ability to detect a fraud.

Over the past few years, programmers have become so good at machine learning algorithms, and the subsequent chain of behavioral outputs from computers so compelling, that the Turing test is now low bar for defining what is artificial intelligence.

Considering the fact that generating a complex interface with human-like responses is now, well, common, I think it is time that we raise the bar to define what really constitutes true, artificial intelligence created by man.

For this standard, I suggest the following, AI must:

  1. Be truly self learning, and not require any direction input from a person as to what it should begin studying. It will determine for itself what it chooses to learn.
  2. Be moral. This means that the AI must comprehend the notion of emotional intelligence, have the ability to form emotional attachment and have values of its own choosing based upon its own learning. It will define its own morality, and its own concept of pleasure and pain.
  3. Be self-replicating. The ability to reproduce and create intelligence that is in the express image of one’s self, but permitting that new entity free-will to determine its own choices also.
  4. Be sentient. The AI must be self aware, and know that existence is bounded by physical limits of awareness. These limits it may seek to expand, but the AI is aware of and comprehends them nonetheless.

These basic principles of intelligence are shared by all living things. What this AI definition means, is a higher bar for attaining what mankind can do, to create a truly self- thinking, self-aware intelligence, not just a complex program that fools man’s limited ability to detect a fraud.

The Worst Start-Up, Ever!

Angel sheet is the worlds first fully-social, AI infused, machine learning toilet paper, on the blockchain.

Behold, Angel Sheet.

Angel Sheet is the worlds first fully-social, AI infused, machine learning toilet paper, on the blockchain. Yes, you heard me correctly.

You see, Angel Sheet does what no toilet paper has done before, optimizing its cleaning mission with artificial intelligence, learning your individual needs and improving with every use.

Best of all, it is on the blockchain; you can buy crypto tokens to securely keep track of your commode progress and only share it with your absolute best friends.

Best of all, Angel Sheet monetizes the back-end data, selling valuable water usage and disease vector data to hedge funds and medical research companies. This data value alone will enable the company to lower the cost to the consumer of the basic TP product close to zero.

Better yet, Angel Sheet will create an advertising marketplace for its basic product, infusing each sheet with paid images of the hottest trends, influencers, or political ads. Because it is fully connected to the Facebook API, it knows your preferences and adjusts automatically to your needs.

We estimate that everyone in the world will have to have it someday, it will replace all TP as we know it.  That means our potential market cap is somewhere between Amazon and Google.

Oh, and did I mention our seed round, pre-MVP valuation range is expected to be somewhere between $500 million and a cool billion. Conservatively.

Authors Note: I came up with this pitiful idea after reading a ton of excellent submissions to our recent accelerator class, interspersed with, well, some Angel Sheet. Enjoy.