From Hopes and Dreams to The Real Thing
Companies start out as hopes and dreams and stay there for at least a little while. Even after the product has been launched and users are jumping aboard, the company is still in hopes and dreams mode.
But eventually one of three things happens to a company; it goes out of business, it gets sold, or it becomes a real business.
And one of the most interesting things to watch and learn from, as an entrepreneur or investor in entrepreneurs, is what happens when you go from hopes and dreams to the real thing.
There is a big chasm between hopes and dreams and the real thing. Companies need to grow up and go through the ugly adolescent phase. They start to doubt themselves, they start to churn employees, they may even go through a management change or two. Getting across this chasm is hard, it takes tenacity, both from the entrepreneur and team and from the investors. Everyone has to stay the course, buy into the plan, and execute it.
Crossing the chasm to the real thing is not nearly as fun as the hopes and dreams phase. It is hard work and it happens after the gushing media has left your company for the shiny new thing. Your company will take a morale hit and you will have to lead it through this phase.
But getting to the other side is worth all of it. There is nothing as satisfying in entrepreneur land than having a profitable growing sustainable business that doesn't need another dime of anyone else's capital. I have watched entrepreneurs stand up in front of their teams and tell them that they've reached that point. I get chills every time I see it.
Many entrepreneurs choose to sell their companies during the hopes and dreams phase. I can understand why. When someone is paying you in advance for all the hard work you are going to have to do in the future, it is tempting to take it. And there is always the chance that you won't cross the chasm and you'll end up in the deal pool at the bottom.
I don't like to stand in the way of those decisions. But I also like to remind entrepreneurs that with the right amount of capital, the right team, and the right plan, they will get across the chasm and I like to point out what waits for them on the other side.
I also like to advise entrepreneurs to take advantage of the financing environment that is available to them during the hopes and dreams phase. It is a strange situation. Your company will be worth more to investors during the hopes and dreams phase than it will be worth while you are crossing the chasm. So you should raise enough capital at hopes and dreams valuations to get across. If you don't, a down round is waiting for you as yet another challenge while you are crossing the chasm.
Companies with no revenues but big potential are worth whatever the market will bear. But once you have revenues and are heading towards earnings, the market will be able to better assess what you are worth. Revenues and earnings multiples will enter the valuation discussions. And most of the time, revenues and earnings multiples will result in a lower number than hopes and dreams, at least for a while.
Facebook is a great example of this. Microsoft paid a "hopes and dreams" valuation of $15bn a few years ago while Facebook was growing fast but just starting to generate revenue. That round didn't get Facebook all the way across the chasm and there was that difficult financing in which Facebook got offers from private equity firms in the $3bn to $5bn range. Facebook eventually concluded a "down round" at $10bn with DST. And that round got them all the way across the chasm and now Facebook is profitable and its shares are trading at $25bn in the secondary markets.
Many companies go through this valuation roller coaster ride as they cross the chasm. Don't fret too much about it. Once you decide to go for it, you need to be focused on the end game and interim valuations don't matter too much as long as you hold on to enough of the business for yourself and your team. The right investors matter a lot in that scenario.
Anyway, this post is getting a bit too long for my taste so I'll wrap it up. The best companies I've been involved with in my 25 years in the VC business are not always the big exits. I enjoy watching an entrepreneur and a team spend a decade or more building a real business that creates sustainable value for everyone. And that process is never pretty from start to finish. Don't worry about that. Embrace it. It is just another challenge to be met. You can cross the chasm from hopes and dreams to the real thing if you have the tenacity, the team, the plan, and the right capital partners. And when you do, it is the greatest feeling.
really inspiring post
Fred, so many of your posts are helpful to entrepreneurs and this has to rank among the absolute best. You clearly articulated a profound point that many investors stumble over and create a perception of mis-aligned interests with the entrepreneur that simply doesn’t exist. I will share this with all my portfolio company CEOs. Thanks for taking the time to write this. And IMHO it is NOT too long.
Ha! This is a Tweet compared to some of your posts Roger! 😉
There is nothing wrong with long, we have a history of long yet fine literature. I just finished a retelling of the ramayana…both of these are nothing! (if anyone wants to write an epic poem on startups, feel free)
Ramayana? Sita was born in my hometown.
We (founders & funders) seek aligned motivations, but we have to respect the individual positions. As investors you want to limit risk and get a fantastic team at a deep discount on the market, and as founders we want to build a broad impact utility that grows large and profitable without losing hold of the rudder (ownership). The tensions ok as longs as there are open communications between all parties. We’re all trying to mold potential into an existent thriving business. The transition from abstract to real is an unknown path, that is bound to get a little wild at times.
I agree Roger – it’s not too long.
I ‘think’ our company is going through this phase of the ‘real thing’ but am wondering if its possible to go back to the hopes and dreams phase after? is wanting it a good thing?background:We started off with something we really wanted to do. after 6 months of that, it had to get real as the 2008 financial crisis hit. We cut out (hid) 80% of our product plan and retrofitted the existing product to fit a clear-ish market need. After 1 year of doing that, we are now on track to become cashflow positive in the next 2 months and looking at profitability and growth.but now, I really want us to go and execute on what we started this for. the problem is not solved. yet the rest of the management team is in an ‘operational’ mode of thinking and it is extremely difficult to re-energize to work for the higher goals. chasing those objectives mean short term sacrifices and longer term investments.It was much easier to justify such investments in the hopes and dreams phase, but now that we are paying for everything with the money we generate within, it is next to impossible, especially if its a hopes and dreams investment.how do you deal with that? will getting some cushion with a funding round help?
Raise some capital and go for it
I think you are in a position where a restart or new venture will give you a fresh chance, unless you can pull a Steve Jobs.
Pulling a steve jobs would be seriously tough on its own.As fred says below, funding / cushion can be a catalyst for the transformation.Gotta try it!
As in life, it’s not where you start, it’s where you end, that matters.
And I thought it was enjoying the pretty scenery along the way 🙂
… “It’s not so important who starts the game but who finishes it.” – John Wooden
Great post, Fred. I refer to it as moving from “hope and buzz” to “metrics”. Nothing kills a good story like metrics. There’s an interesting tension in what you write, though. Entrepreneurs should raise as much money as they can during the hope and buzz phase. But investors should expose as little capital as they can until the start-up has crossed the chasm and real validation is established. Interested in your thoughts on this potential point of conflict.
well i think that we should expose as little capital as possible while the product is trying to get to product market fit. but i don’t think we should be as tight with our capital once product market fit has been established and the hard part of company building starts
Agreed. Good entrepreneurs are often tempted to raise more capital before product-market fit to give them cushion. Great entrepreneurs resist this temptation and realize that over-funding can bite them, in the long run, through down rounds or sitting behind large preference stacks.
Though in your book, you do cite Marc Andreesen’s advice to @Jack to build up a “war chest.”So does that mean Twitter had their business model figured out at that point? I don’t think I’ll get an answer here (certainly not from Fred), but it’s still curious…It’s all a matter of timing and proving a value proposition – big or small – one step at a time.
Good catch. I think in providing that advice, Marc was speaking as an entrepreneur, not an investor. Based on user growth, Twitter clearly had product-market fit at that point. Business model is another story.–> If you want to check out my book on VC and entrepreneurship, called Mastering the VC Game, see http://www.jeffbussgang.com.——————————Jeffrey J. BussgangFlybridge Capital Partners500 Boylston Street, 18th floorBoston, MA 02116E: [email protected]: 617 307-9295F: 617 307-9293Blog: http://www.seeingbothsides.comTwitter: http://www.twitter.com/bussgangURL: http://www.flybridge.com
Good clarification on both points.
Really enjoyed reading that TechCrunch excerpt, blogged about it.
So from a personal standpoint, you enjoy seeing entrepreneurs build real businesses (which is great to hear).Though I’m curious what your position is at that point in terms of exit strategy for you and ultimately your fund? You’ve got to get your money back somehow…
my partner brad is fond of saying “show me a business with tens of millions of engaged users and i’ll find a business model”and in the same vein, i’ll say “show me a business with tens of millions of dollars of profits and i’ll find an exit”
Good to hear your yin and yang are in balance…but what does Albert say?
He’s a taskmaster. I’m working harder than ever since he joined us
i sat with a VC here in boston 2 weeks ago and he closed the meeting with”so i need to know if you guys want to build a real and lasting business and swing for the fence, or are you looking to jump a few valuation iterations and get out – we truly try to only invest in the former”We responded with the former. I believe every entrepreneur has to take this view. If you happen across a favorable exit along this path – then so be it.
I have been giving some thought to the monetize Tumblr meme.
Nicely put, Fred.I’m busy looking for the next dream … even the nightmares have been ‘interesting’ … 😉
I totally agree with @infoarbitage on the encouraging approach you are giving to the article. As a matter of fact, apart from the knowledge, the hard work and willingness to grow and achieve one’s goals, entrepreneurs, especially the new ones need to feel they are supported by the other members of the business community somehow and I believe these articles are encouraging for those believing that their plans might end up being just a dream. It is always good to tell them about all the advantages and possibilities combined, of course with the negative aspects and the preparation for eventual failure.
I’ve lived the ups and downs and downs and ups of entrepreneurship and my experience has been that when you look back on those days when you were in the trenches fighting for survival, you’ll see them, through the lens of nostalgia, as the “good old days”. By contrast, scaling a fast growing startup that has found its market fit is stimulating and exciting but, at least for me, sits nowhere near as prominently in my minds list of proud moments.My last entrepreneurial run went from 2000 to mid 2006 with a true “go to the light” near death experience throughout most of 2002. The business ultimately found its market fit and had a high growth phase from 2003 to 2005 (from 7 people to more than 200 during that time). Through the miracle of memory, I now remember 2002 very fondly as a source of pride, learning, and character building. But at the time it was not fun – on the contrary, it was as scary as I would let it be.I’ve been watching and reading about startups since I was in high school and knew it would be what I tried to do when I read Startup by Jerry Kaplan while in college (still a great book for entrepreneurs). I’ve observed again and again that for every rapid success like Facebook, there are 100s of overnight moderate successes that took 10+ years and will never make it to the business papers and blogs. It’s really a marathon, not a sprint and sometimes your worst enemy is your own psychology or the psychology of the naysayers who inevitably crawl out of the woodwork. After all, it’s easy to be a critic and when things don’t follow a perfectly straight curve to success, if you allow yourself to, you’ll hear plenty of them.On the hard days, I sometimes look to Parson’s rules of life: http://www.bobparsons.me/19… They are all great but number 2 and number 3 are, to me, the things that ring true on all too many days of the entrepreneurial endeavor.2. Never give up. Almost nothing works the first time it’s attempted. Just because what you’re doing does not seem to be working, doesn’t mean it won’t work. It just means that it might not work the way you’re doing it. If it was easy, everyone would be doing it, and you wouldn’t have an opportunity.3. When you’re ready to quit, you’re closer than you think. There’s an old Chinese saying that I just love, and I believe it is so true. It goes like this: “The temptation to quit will be greatest just before you are about to succeed.”And the last comment – startups are uncertain until they are not and when they stop being uncertain, they are no longer really startups. If you sign up for being an entrepreneur or working in startups, that’s what you are signing up for. On the particularly hard days I ask myself whether there is anywhere I’d rather work (or anything I’d rather be doing including sitting on a beach) even if it meant more money or less uncertainty. And on those days I realize that I really do have the best “job” in the world.Two thoughts from my father to close the comment, the first of which he told me when I was a teen: “There will always be someone smarter, richer, more accomplished, or better looking so to find satisfaction and meaning, you’ll have to look within”. Nothing truer could be said about entrepreneurship. I’ve never had a huge homerun – the kind of thing that gets you into the business press. But I don’t value my contribution to innovation and creation any less than the names and stories I read about in the press. All entrepreneurs – large and small – push the ball that is society and humanity just a bit forward. Larry and Sergei are the ones we read about in the press but their insights – large as they were – were built on the shoulders of countless unnamed others who are mainly not rich and certainly not famous. Entrepreneurship and innovation is a “noble profession” (borrowed from Randy Komisar’s recent comments http://entrepreneur.venture… ) for all of the people who are involved in it – those with their names in lights and those who grind away anonymously. Society and humanity benefits very little – or not at all – from the untold numbers of rich people who became truly rich by hacking the financial system (to quote Mark Cuban) – and benefits massively from the countless numbers who – despite stress and lack of financial reward – devoted their working lives to innovation. The failures matter by the way. The iPhone for which Steve Jobs gets credit was built on the backs of countless other handheld computers that were before their time and whose investors and employees “failed”.And closing with a joke from my dad “what’s experience?” “It’s what you get when you don’t get anything else”
“The temptation to quit will be greatest just before you are about to succeed.”flippin brilliant Elie
Reminds me of this moment a few years ago:http://www.flickr.com/photo…Literally days after I took that picture, whilst feeling very low in my car (hence why my wife bought me the joke button at Xmas knowing I was getting to that stage), a funding deal was done for my (then) start-up.Things haven’t – thus far, at least – developed quite as I had hoped, but at least what I was working on, for so long, got to market and became real. That alone was priceless.
ha – I like the photo Carl. It’s a winding road in start up that’s for sure!
I need one of those…
what a great comment Elie. i reblogged a small part of it on fredwilson.vc. the greatest pleasure i get from writing a post like i wrote this morning is the even better comments it generates. yours is a prime example of that. thank you.
And and among the many great pleasures I get from reading your blog and reading the comments is that they are the “seeds” for reflection. Without that seed, I would never have written the comment. The “Fred seeds” and the community of insightful people around this blog are a fantastic contribution to entrepreneurship and innovation. I only wish it had been around when I was a first time entrepreneur in 1999.
swap the comment for the post ;)i liked both
Elie you’ve expressed my sentiments exactly, except ten times better than I could. I’ve never saved a post before but I saved this one. Thank you.
Thank you Phil (and others) for your kind words. I’ve learned so much from this group so it’s very enjoyable to be able to share my own experiences with you.
Elie, this was an absolutely wonderful comment. Thank you for sharing.
Brilliant comment – thank you for sharing.
Elie, what an awesome post. inspiring, & so accurate (c u at the next Bain reunion..;), Eyal
Thank you Eyal. I’ll see you soon.
Elie, what an awesome post. inspiring, & so accurate (c u at the next Bain reunion..;), Eyal
Brilliant Elie…fantastic response to a great post from Fred.
Thanks for sharing Elie. Inspiring stuff…
Awesome comment, Elie.
“There’s an old Chinese saying … ‘The temptation to quit will be greatest just before you are about to succeed.'”I once got a fortune cookie that said “if you find yourself driving off a cliff, stop driving.” So there’s that, too, I guess.
LOL.. That’s news you can use!
Thanks Elie. Most people won’t put it out there how hard it all is.
I think both current entrepreneurs and would be entrepreneurs would be well served by a more balanced discourse on the realities of entrepreneurial life. The milestones we all read about entrepreneurs and companies achieving – the new round of funding, the sale of the company, the strategy behind a new product innovation, the hiring of an exec – are are the notable things that make for good press fodder. But they are a tiny fraction of the real entrepreneurial experience.Something my business partner, Ariel, is really good at with new hires – particularly those moving to startups from BigCo life – is to ask them what they want every day to be like. There is typically a massive chasm between what a startup looks like when you read about it in the abstract and what its actually like day in and day out. That’s true regardless of your work background but we’ve both found that with people migrating out of BigCo, it’s most acute because suddenly the world goes from endless meetings and the politics of a large organization to day in day out long days of actually having to do stuff and put points on the board. There is nowhere to hide and it can be grueling and tiresome for the unaccustomed. Those people learn the hard way that there is very little glory or glamor in “entrepreneurship”. It’s just a bunch of people pounding away at a problem day in and day out, learning more and more, and doubling down on the smart stuff and choosing that today is a great day to stop doing dumb sh*t.
I think that all that hype around entrepreneurship is part of the cause many companies don’t make it through the chasm. Many entrepreneurs are highly motivated about building a product or a service, but the day they have to start managing people, budgets or legal stuff they go down. All that things are also a very important part of building a business, but they are never talked about. Sometines this can be solved bringing external management for the day to day and keeping the entrepreneur dreaming, but that’s not always possible/desirable.
I agree with you but with a nuance. the admin stuff is the easy nuisance. What’s very hard is dealing with the stress of uncertainty and that things take twice as long as you’d want. It all looks so easy in powerpoint and excel
Yes, closing sales in excel is sooo easy! I love it!
I think managing people, lots of them, is the hardest part. I have deep respect for those that can do that well. I am not in that camp
Truly is. Managing and leading a lot of people – ideally very talented ones – to be maximally effective is a very special talent. No innovation gets executed alone so its a gating skill set. A guy with a great idea and the lack of ability to lead and manage is just a guy with a great idea. I’m just glad it’s the kind of thing people are kind enough to pay me to do 😉 I’m not much good at most anything else.
You sure about that? wrote a damn good comment today 😉
Vision, group dynamics, engineering. Those are the three buckets of paint. But a lot of VCs get caught with just the engineering part.
As somebody that’s been doing it for twenty years…..I’ve finally been inspired to put up a blog from just the entrepreneurs viewpoint, not a vc rockstar entrepreneur, not a billionaire entrepreneur, just an entrepreneur pushing the ball forward as you so eloquently said. I registered the domain…. justanentrepreneur and I’m going to write from that viewpoint.I banged out ten pages of content today and will work to post it
great domaini can’t wait to start reading it
Fantastic. Looking forward to reading the stories.
I don’t understand why people want glamour elie- shouldn’t people be glad to work with others? there is a lot of joy in that….maybe I’m different…
Deeply enjoyable – it’s the best part of entrepreneurship
wow. 21 likes at the time of this writing, and given that it is still a bit early (12 PM EST), this comment is seriously in contention to be the most liked comment of all time in fredland history. for fredland statisticians, this comment easily as the highest words per like ratio.the number to beat is 31, from this comment made by ed freyfoygle in march of 2010.good luck elie.
Kid I think in your Fredstats, you need to factor in the total number of views or comments for the core post. The popularity of the general post will have great influence over the number of people who bother to read through the comments and therefore your available inventory of potential Likes.For example, a 14 Likes on a 34 comment post might be off-the-charts amazing, whereas 25 likes on a 500 comment post, less so.Not to take anything away from Elie — whose comment was FABULOUS! Just need to get the analytics right. 🙂
great point tereza. i think we also need to factor when the comment wasmade, when fred’s original blog was made, the difference between thetwo…..based on casual observation, i think short comments with easy tounderstand points made shortly after fred’s original post are bestpositioned to cash in on the likes. elie’s comment is particularlynoteworthy IMHO because of its length; never before has such a long commentbeen so well-received by fredlanders.
I am totally with you on all those points.I think when Disqus is ready to soup up its Analytics, they should use us as a focus group. We could get them to Nirvana really fast.
We won’t dare pilot Disqus Analytics without avc.com involved.
What makes you think they don’t already? Whose side do you think Fred is on?
Good ideas about Disqus (and his other portfolio companies) he collects here (and elsewhere) and passes on to the Disqus team, as necessary.
You are a tough critic but absolutely correct tereza
Moral of the story is to be careful what you measure. That being said, glad that the comment has been so well received. Given the group, it’s truly an honor 🙂
My view is twofold:1. Qualitatively, in a standalone way, it is a kickass comment.2. Quantitatively, if you use the measure I was suggesting — essentially, 35 Likes out of (at this writing), say 105 Comments less maybe half for multiple comments by Power Commenters, I land on an estimate of roughly 2/3 of commenting readers Liked your comment. Which is off-the-charts awesome.So I will give you the best compliment I know: You go, girl!
To those wondering. Yes, I KNOW Elie is male. That was a joke.
If men can say mankind, you can say You Go Girl.
I took it the right way == with great appreciation
alas, tereza, you assume there is no conspiracy to rig the game….perhaps elie has multiple disqus logins…..a like bot….
Nahhh, I thought the conspiracy was on the other side of the equation.He’s been paying a team of unemployed former WSJ writers to craft his brilliant comments.;-)
Ah yes! The plot thickens….
good idea. Adam smith would approve – specialization of labor: all I do is stand there, someone else writes the lines.
Hear, Hear Tereza!Back in my day you had to earn every single like, now they get tossed around like candy. And even then kidmercury still doesn’t spell your name correctly. It’s an outrage …..
Ed are you saying that some people are Like Whores?
Wow Kid, I think this comment makes you the authority on this blog’s comments sections. I am impressed.
IMHO it is important to keep historical records, so that future generations know where they have come from.
IMHO — making sense. The term is.
It went to 53…
ladies and gentlemen, it’s official — elie seidmen has officially made the most popular comment in fredland history! 35 likes at the time of this writing. congratulations, elie. if i had the time i’d design a badge for you, but alas, i don’t. perhaps someone else will. if not, just pretend. 🙂
🙂 Why thank you.
Stronger than a half acre of garlic in W Texas. More riveting than a barbed wire enema!Good judgment, the product of experience.Experience, the product of bad judgment.
Truly laughing out loud. Thank you. I love the last line as will my father. So good.
A great, great comment.
Loved your article Elie! Especially the joke from your father about ‘experience’.
“All entrepreneurs – large and small – push the ball that is society and humanity just a bit forward.”That is not only poetic but oh so true. Logged in my quotable quotes file. Thank you for this and an overall inspiring comment.
Do the real thing, cross the chasm, separate the men from the boys :^)
Fred, Very well said. But what you’ve said is something fairly common (all good-at-heart investors advice the same). The real magic of your blog lies in the kind of comments it motivates. What else can explain Elie Seidman’s detailed comment here?And yes, if you wrote the post with someone specific in mind, I hope they listen to your sage advice and realise their full potential.
i wrote it with 32 companies in mind, ie our portfolio
ah, well 🙂 It is more like Buffet’s annual letter to his shareholders in that case. Good luck to all 32 of them.
Only Fred does it near daily.
Absolutely great assessment of the life cycle of a startup. When we went from the hopes and dreams of a couple of kids in a dorm room to having office space and 5 employees, it started to GET REAL very fast. Credit cards piled up, commitments were made and suddenly you have to be a grown up.What helped me get out of that stage and into a company that was healthy and growing was the creation of our advisory board. These guys helped us on so many levels and watched us grow from 10-15 people to 80 in a few years. They reassured us, they gave us confidence and a multitude of great advice.
i didn’t mention mentors but i should have. they are critical
That’s a blog post. Please elaborate.
I wrote this last night: http://andyswan.com/blog/20…Thought it had nice parallels to what you’re saying here (I hate when people link to their own blog in comments…sorry)I’ve had two exits, one of each of what you describe here. You are SO RIGHT….and the pride I feel for the “crossed the chasm the hard way” one is much greater than the “sold before crossing”….despite the score of the 2nd one being greater and the reasons being right on (I HAD to work with this company!!)In fact, it’s so powerful that there was NO WAY I was leaving the 2nd (mytrade) until we had crossed that chasm. The pride associated with that has completely trumped the pride involved with the exit 2.5 years ago.
Agree and liked your post Andy. Don’t apologise for the link – there’s a difference between some of the gratuitous linking you see and the occasional relevant post imo
From the shivers you get when a leader relates to their team profitability, to the genuine respect you describe for the process of “crossing the chasm” from Hopes&Dreams to Real, you inspire.If there’s one thing I wish to take away from my many hours spent @ AVC, it’s to nurture in my own life the gravitas for the creative business cycle, shared by folks here.I have little doubt that creating sustainable businesses is in my future, but in addition to the chasm we are in peril of sacrificing our own beliefs to survive and succeed. Bending is acceptable, breaking is never an option.
Great post on so many different levels… I won’t ask about Foursquare in the context of the commentary… But will just make one minor remark from the peanut gallery: for all the long term benefits that could materialize from raising capital at the cross-over point, VCs need to start showing some meaningful exits… This too is in the long term interest of the entrepreneur community.
what is a more meaningful exit?- mint selling out for $175mm before they built a business- the IPO of OpenTable at $450mm valuation 11 years after it got started?
I think it’s a matter of perspective. In my comment I was suggesting the LP perspective, which rightly or wrongly drives much of the private investing direction, which in turn impacts entrepreneurial direction. So, a startup being prematurely sold (from entrepreneur’s perspective) could actually be a good thing for entrepreneurship in general if this furthers the cause of venture capital fundraising.
There goes a link to a post by 39 Signal’s Jason Fried in which he regrets that Mint was sold too early. He shares some of your points.http://37signals.com/svn/po…
That’s a great post on Mint.
I think that’s why it’s appropriate for founders to be able to take some money off the table at a certain point (the “feed the family” money as Mark Suster calls it), and then shoot for the fences. Although maybe for the people at Mint, $170 million was the number they had in mind at the beginning for the “fences”. Hopefully they won’t live in regret for having sold the company.
Great post, and equally inspiring comment from Elie.This resonates with me on so many levels. We started my current company in 2007. A year in, we realized we were seduced by the Web 2.0 bubble and our consumer facing startup wasn’t going to grow into a profitable business. We pivoted the company completely and transformed into a B2B company and raised a seed round in late 2008. That was tough, especially giving up the original dream. But what kept us going was that our new B2B model still inspired us and gave us a larger purpose (i.e. we were able to regroup around a strong, refocused vision).2009 was supposed to be year that we built the product, grew our team and killed it with sales. We did well in the first two, but B2B ales were hard. Really fuckin hard, and the stress of missing targets and the pressure of having investors was getting to all of us. But we kept chugging along, doing whatever it took to survive. Fast forward to 2010, and we are now cashflow positive, close to product-market-fit, expanding and finally emerging from those dark days.If and when we make it, I will always look back fondly at 2009 and the early part of this year. We could have given up so many times. We should be out of business. But somehow we fought, and despite the stress/depression/gloom, I will probably look back and see these as the best days of my life.Sorry for the long post, but as they say: entrepreneurship is a beautiful struggle.
the greatest experience i’ve had in my career was getting through 2001 and 2002. it was really hard but it taught me way more than any other period.
That also is a blog post, Sir.
That’s a nice musing, but it almost seems like you are avoiding the hard question Fred. Are there key lead indicators that tell you that one investment is likely to make it across, and another isn’t?Human adolescents don’t usually die at a high rate in the modern world. If they make it past infant mortality risks, adolescence is not a high-mortality life stage.That’s where the metaphor breaks down. The mortality rate is much higher for companies than humans overall, and I’d like to know the life-stage mortality profile. I’ve seen the number quoted that 1 in 10 businesses make it. I’d like to know how that breaks down by life stage… paper napkin, first prototype, pre product-market-fit, post-product-market-fit… as with humans, I imagine the risk is highest in infancy, and that odds improve dramatically if you get to PMF, or am I wrong?Personally, my stuff isn’t at the edge of the chasm yet… still at hopes/dreams. But heading to the chasm very quickly. Not looking forward to that phase, even though I know it will be transformative and fulfilling 🙁
venkat – i always say our investments will experience a 1/3 rate of complete failure, 1/3 mediocre result, and 1/3 will meet our expectations.and yet, since we started USV in 2004, we have funded 32 companies and all of them are still operating. a few are struggling mightily and may not make it across the chasm but we have tried to support them all to the extent that is reponsiblemy point is simply that the failure rates may not be as high as I have seen historically given the capital efficiency of web services or at least that web services companies may have more time to cross the chasm than other venture backed companies
“….we have funded 32 companies and all of them are still operating….”I have quietly noted that about the USV portfolio. I think you have a secret sauce that allows you to pick sure winners.
we will have some failures, maybe soon
There must be a sound strategy for that as well. How do you cut your losses and move fast? Also, how do you save what is worth saving and letting go of the rest? Is it worth it to reinvest in the same entrepreneur for another idea?
Switch mode. Look forward to it.
Fred, this has to be one of the best posts I’ve ever read on here. I’m in the beginning stages right now, constructing a prototype with a rock-solid vision of where it’s going but, naturally, a lot of uncertainty surrounding things. I know the market will be exploding in the next few years, so it’s both exhilarating and humbling to know that this could be something amazing if we do it right. Right now, as I build out the team, I’m just trying to take it a day at a time and not get either too high or too low.Jack Welch gave a talk at my college my sophomore year, and I’ll never forget what he said: “An entrepreneur has to strike a balance between eating and dreaming.” It’s been one of my quotes to live by ever since, and it’s especially been helpful now, when all we have is a dream.Again, thank you for the amazing post.
great jack welch quote. thanks nick
Great motivational post, and this is one of the most inspirational ones you’ve posted in a while. I think all entrepreneurs with a big dream or vision can relate to this, yet they don’t realize its potential until they reach certain plateaus, especially when certain realities sink in. Some entrepreneurs give up before they can raise funding, or some don’t really get to the point where they can, yet it’s those who don’t give up, are the ones who realize their dreams. Never give up, as nothing works the first time, and in fact, entrepreneurs learn from their mistakes. Think how many times one must run on the treadmill, then finally figure a way to get it done right. In fact, the ones with big hopes and dreams who fail forward, learn from their mistakes, and still keep at their hopes and dreams are those who succeed. Take Twitter for example, if they stopped at the first Fail Whale, they wouldn’t be where they are today. Another good example of this is with Boxee, and how they contacted you long before, and you did not invest, then they reached the plateau and they were able to raise capital.I think entrepreneurs can remain in hopes and dreams mode even when they do go public, and it becomes a realization of a dream. For instance, look at Apple with the iPad. Apple being a public company still has hopes and dreams, yet they are certainly in a different direction from when they were creating the original Macs. Steve Jobs was hoping that it would be adopted and now they’ve sold a million of these devices, something that he’s done before of course, yet it was a new hope and dream with a new product. Smaller internal projects in bigger companies are kind of like entrepreneurial endeavors, yet they are not the same hopes and dreams as the original entrepreneur. Internal corporate projects are not taking the same risk, they are not dealing with putting credit card debt, living as frugal, dealing with the visionary plans, dealing with being told this can’t be done by some, etc. It’s interesting to think about, yet hopes and dreams when transferred to a team of entrepreneurs or employees working for a larger company, can really make that company succeed. I thing Google has done a good job with this, with their Founders Award, and essentially letting the corporation give employees the opportunity to take on great endeavors.
Fred, this post is especially interesting in light of the MBA-or-not discussions that have been going on the last few days. It popped up again with Guy Kawasaki, Tech Crunch – http://tcrn.ch/dfoKd9 and Steve Blank – http://bit.ly/9Um9vM. I really liked Steve’s diagram showing the “Crossing the Chasm” phase (sorry Geoff Moore) as the transition in the company. It spoke volumes to me about where an entrepreneur will be happiest with themselves. Not all entrepreneurs want to cross the chasm and transition into running the bigger company. Some just like the thrill of blood/sweat/tears in building products and companies. Jeff Bussgang talks about how it felt to suddenly have to delegate to others and sit in your office wondering what to do.Part of what is most wonderful about being an entrepreneur is that we nearly universally love out jobs and don’t even feel that they are jobs. We do it for the love of what we’re doing and because it fulfills our life. Those hopes and dreams are our life.
As with much of the guidance on A VC, I just want to explicitly point out that this kind of thinking extends to virtually any new technology project – startup or not. The beginning is *always* more intoxicating. Finding the moments in a project that elicit that intoxicating feeling from the outset is what helps me drive things to completion.
Fred, this has to be your best post of the year to date. Absolutely fantastic! Thank you.
Fantastic post Fred. You mentioned that it was long for your liking … but if it were a book I’d still be reading it.
Yeah. I think the post was not long enough.
Inspirational post Fred, a true benefit for everyone in the entrepreneurial community. Thanks for sharing. It made me stop and really think today, and in a way changed my worldview of how I see the my current company and the stage we’re in. That’s powerful stuff, when you can cause real, sincere and profound thought and (hopefully) a change in action in less than 900 words.And who says blogs are just a cheap form of new media compared to the “real” media of yesteryear…
The best of new media comes from real people sharing real experiences
Your ongoing work as a VC is what makes this blog what it is. As in, most of your time is spent in action out there. Although I must say you have a decent writing style, and you could strike out as a full timer if you wanted to. 😉
Fantastic post Fred. Not nearly enough ink has been spilled concerning the long and difficult adolescent years, after first significant revenue but before exit, for tech startups. This is good and honest advice regarding the valuation and hype rollercoaster.
“Success is not measured by what you accomplish but by the opposition … Failure is never fatal. Courage is what counts.”~ Sir Winston Churchill … “Success is the ability to go from failure to failure without losing your enthusiasm. …”
What an encouraging post! The mix of dreams, business and money is powerful. This post just touched every aspect of it. Thanks.
The trifecta of the startup world
loved this post. sometimes hard while in the thick of things to view your own company from this altitude…nice to have investors who can remind you to…
I just want to give this post a big hug after reading it. Thank you:)
Thanks Fred. It’s not too long. You probably should send it to your kids. The advice goes for every stage in life- I see myself and friends freaking out about all sorts of lifechanges- there is an ugly adolescent side to everything until you find out how to adapt.This is about how that change works. The Chill is normal- you get to enjoy watching something grow up all the time. It must be hard to say goodbye though after that point in a sense…(I mean not recently, but after a while it must be the case)
My kids are too close to or still in that adolescent phase. I’m not sure they’d totally get it
save it for later then somewhere special. it work…I’m close to itmyself….
Really great post, Fred.You’re talking about passing through and out of adolescence phase. And I hope to get there.Another critical phase is that Idea to Market/get some cash transition point. The analogy is — does the baby survive childbirth and the first month of life.Investors sometimes have a portfolio problems that need to get solved. And when they see all these great ideas come through from pitches there is plenty of opportunity to cherry pick or shoehorn these ideas into their existing portfolio companies.This came up yesterday to me; an offer to intro me to a porfolio company CEO to share my thinking, and possibly discuss an early-stage collaboration, since they have a platform and an audience but haven’t figured out how to monetize.I was like….WTF? Hand my baby over so they can crush its skull? No thanks, I think I’ll pass.This moment feels vaguely like, years ago, when I took my firstborn on the NY Subway for the first time and exposed her to all kinds of icky germs. SCARY!And there is no wrath like a protective mother.I bring this up because it feels to me like truly the wrong way to kill a newborn company. It has nothing to do with the Entrepreneur, the Great Idea, or the Size of Market. It’s an X Factor hovering out there that could kill you fast.A future post would be great on how to package and protect early-stage pitches so they don’t get stomped or twisted into existing portfolios or the idea isn’t stolen outright. What’s competitive and what’s discreetly different. And how to get the benefits of openness and exposure without getting prematurely crushed. NDAs don’t mean a thing. Maybe it’s about the sequencing of who you’re talking to, and knowing their existing portfolio cold and opting out of ones that may be perceived as overlapping. And maybe that’s a reason serial entrepreneurs have an advantage — they can bring in cash while telling fewer people. Anyway, food for thought.
Fred you are an inspiration in entrepreneurs in every stage. Interestingly enough Steve Blank gave a presentation outlining a similar frame work a few weeks back. http://www.justin.tv/startu…
I like the analogy of ‘hope’ and ‘dream’s.Sometimes I guess there is a thinline for the development of a vision(often a mirage), whereby you are pushing too much and the inevitable reality of living bills kicks in and a mindful question is raised.As long as a slight positivity is maintained and maybe a spin of luck, this can catapult an early underdeveloped set thing into a net profit company. A post from simply zesty a while back I think shows this is possible 1 year on 500k investment, quite a nice chapter after a single year. http://www.simplyzesty.com/…
My company will turn 5 years old this fall. We were profitable after our first 18 months (we did a small angel round before that). We have gone through so much, I can’t even properly articulate how hard and challenging it’s been. Head count turnover, complacency (at all levels, myself included), growth, competition, hiring, firings, management changes, maternity leaves (amazing how this changes the atmosphere of a startup when people return. i never noticed it before.). etc.We’ve kept our head down, found our sweet spot and focused on executing while avoiding attention and it’s worked out well for us. As it stands now, we have built a very profitable and tightly controlled business. I’m proud to say we have around 30 great people working their asses off while hopefully enjoying themselves and making above market compensation at the same time.However, there’s so much more I’d like to do. I don’t want a lifestyle business. I want a change-the-world business. Someone recently posted on SAI that this situation is the absolute worst outcome for a startup. That section of his post angered me so much when i read it, I wanted to drop a house on his face. While I still think it was stupid, i agree it’s a very difficult position to be in. I know I’m playing the worlds smallest violin. There’s no way I can turn my back on my company or the people who made it was it is today (including our angels) but, there’s still a burn to do more.Anyway, to make a long comment short: thanks for your great post. :-)-mike
Thank you Fred, inspiring post.
Thanks Fred! Over the years this blog helped me build the confidence to pursue my entrepreneurial dreams and now along with the amazing people here I am lifted up and given the strength to push on! Thank you all!!
“Over the years this blog helped me build the confidence to pursue my entrepreneurial dreams ..”Wow. What a compliment to pay. Funny though, first time I am seeing you here. That I remember.
I meant it sincerely. And I trust you’re suggesting I comment more often, I agree.
I know you meant with great sicerity. I never doubted that.
This made me think about Mark Suster’s post about job hoppers. Some people are hooked on the honeymoon (the “hopes & dreams” stage), and are phenomenally good at it, but can’t deal with when thing start to lose their shiny glow. Other people (myself included) thrive on the getting things from birth through the rough stage and standing on its own feet (or 6 feet under), but once the trajectory is known and stablized have a hard time saying interested. A few people are rocks, and will never move on on their own accord. I don’t know that any of these groups are better than the other, and as long as a company has internal support at each stage, I don’t think it needs to be composed of lifers.
“Your company will be worth more to investors during the hopes and dreams phase than it will be worth while you are crossing the chasm”I think you’re referring to rounds B and C, but it’s also true of seed rounds: angels will often give you a higher valuation when you just have a prototype (or a ppt) than once you’re live struggling to build your user base. Dreams are easier to believe when they are unobstructed by real-life.I guess the game is to load up just enough at every peak in the lifecycle
Nice post – but what a great set of comments!Wanted to point out that this “chasm” does not apply only to startups/entrepreneurs. All non-trivial projects go through these phases, which is why it is so important for the whole team to be aware of them. One of the more difficult things I have had to deal with is people not realizing that after spec/architecture/kick-off the days and nights of implementation will follow to wipe away even the memory of initial rosy assumptions they had.
Yup. So true
General perception(Digress). I love the fact that all comments are of such high quality. All together a great read !!!!
One of your best posts ever. ….. Sorry been gone a week; A Time Warner Vacation http://goo.gl/fb/llqDv
Very good post. It’s having the right mentality going into a launch that can make all the difference. Launch hard, launch fast then stay focused – because its going to be a long climb. This post is a great reminder that we passed around to our team.
In my book, 10 Powerful Personas, one of the Personas is called “The Artist”. The Artist is the creative visionary that wants to do work better than wine, women, and song and has a unique comnination of vision and skill. This quote embodies the Persona quite well: “The goal isn’t to live forever, the goal is to build something that will.”The foil of the Artist isn’t someone that destroys value; the foil of the Artist is “The Dreamer.”If you are unable to relentlessly go through the microscopic steps to achieve the vision, you will produce nothing.
Great post for anyone at a start-up to read. And definitely something I can relate to as we go through the roller coaster ride over here. But this is exactly why I joined a start-up… so much more exciting, challenging, and interesting than at a company trying to maintain status quo.
Fred, I think you may have missed one model: The fine independent.I currently work for a great small company, 1M on its way to 2-5M, steady growth. The founder never took a dime of capital, and no debt. He has been in business for 23 years, operated ECGrid, a well known ecommerce B2B net (covered well in the trade), and is just at 10 years of operations as a brand, starting to sweep the industry with ECGridOS, a Web Services API for creating autonomous EDI networks. Not one other VAN, even the giants, offers such a programmable service, and Todd Gould and his crack team did it brink by brick, with competence and aplomb.The dude is a real mensch, and an inspiration, a thought leader, and I often ask myself, “what I am I doing here working with real adults?” I covered his company , Loren Data Corp, when I was an analyst at France Telecom R&D, and after I left Todd kept in touch and tracked me down, and drew out my innate talents to evangelize a contrarian product in a market filled with laggards.EDI Messiah? No. Just a man that runs a tight shop like a human, but he never stopped innovating.
i didn’t mean to miss that type of businessi think they all go through tough times
He went through a dark night of the soul, and is being squeezed amongst mergers and consolidations, but you get the idea…not all game is got through pitches, some are played with wit and witches.
Fred, not to get too psycho-babbly on you, but I suspect you may have needed to declare e-mail bankruptcy, in order to enable this post to happen.Just sayin’…
yupyou have to clear the mind sometimes
those last two paragraphs are gold.thx
Maybe its because I just finished reading the Dip by Seth Godin, or maybe its because I feel like I live this post (and see it in so many of the entrepreneurs around me), but this is one of the most poignant posts I’ve read on this blog (and I tend to love most of them!).I guess its like any relationship or commitment– in the beginning its a vision of what the future will be like, but then reality begins to set in. The thing that amazes me is when, difficulties and all, the reality is even more incredible than your wildest dream. I’m glad that reality is often so different than hopes and dreams, or else we’d be limited by our own imagination.
Great Post Fred, its always amazing how many entrepreneurs will quit when its in that hard phase. Which is probably why what like 99% of business’ fail in 1st 2 years.Chris Voss
Oh, we SO get our money’s worth here!
Great post Fred – but using Facebook is a bad example. They manipulated that deal to create a perception that they were worth $15 billion. The reality is, Microsoft just wanted an exclusive search deal.What’s the value of 1.6% equity to them? Microsoft isn’t an investor, they are an acquirer – and such a pithy equity amount has less to do with either and more to do with agreeing with the terms of the search deal. Microsoft would have happily paid $240 million for the deal – which was considerably less than the $900 million Google paid (or rather, committed to) for the MySpace deal.
This is why I read your blog, another motivating entry | Thank you
Who is Evan Williams talking to?
I like this post because it points out a problem so pervasive in life – when there are no sure deadlines, it is tough to get anything done. Sometimes, a personal deadline is not enough to motivate. I am currently involved in a startup business competition called MassChallenge. It’s a nonprofit organization that offers support and free resources like mentorship, workshops, networking, and access to funding opportunities to seed-stage entrepreneurs. Best, it creates that “artificial urgency” that inspires people to get moving and get the job done – to take that idea from a dream to a real, successful company. Any entrepreneurs out there should check out MassChallenge.org and enter the competition!