(Part 3 of the Founder Briefing Series)
Statistically speaking, most people are extremely unlikely to build a successful business. Most people don’t grow their own food or sew their own clothes. Most people don’t pay their own salary; they get a big company to do that for them, as with food and clothes.
It’s hard. Most attempts fail. If you fail, we want you to fail for the right reason (you had a good idea that people just didn’t want very much) and not the wrong reasons (some predictable, preventable mistake killed the company).
If anyone can build a business that’ll pay you a salary, it’ll probably be an engineer who builds it. Because engineers build things. JFDI teaches engineers to become entrepreneurs. Building a business isn’t that different from building a product or a program. A business is just a machine for creating value, and it runs on people as much as it runs on software.
Entrepreneurs are a special breed of crazy people who accept the challenge of building a new machine. Not just a new machine, but a new kind of machine, one that the world has never seen before – that will pay not just a monthly wage, but an entire lifetime’s worth of wages, packed into a few short years.
Freelancers have already started that journey. They find a client, they do the work, they get paid. The challenge now is to create a machine which finds clients and gets paid, even when you’re not directly working the loop. That’s the difference between a service and a product business. If the machine can pay others too, then you’re not a freelancer any more; you’re a founder!
Product Development vs Business Development
If you’re reading this, we assume you’re already good at building products. In a startup, product-development skills are absolutely necessary. But they are not sufficient. A startup is a business, a company, an organization. And most product developers have only ever worked in a business; they have never worked on a business.
What developers do with products, entrepreneurs do with businesses. Fortunately, engineers already have the mental framework needed to build a business, because both businesses and software are just special kinds of machines. In both kinds of machines, your job is to design and execute processes. Software processes include daemons, servers, one-off scripts, and user interfaces. Business processes include accounting, hiring, selling, fundraising, and product iteration. We teach you to zoom ´ƒ˜out and do in business what you already do in software.
How does JFDI teach business? Experientially. You learn to do it by living through it. Many people have said that you learn as much at an accelerator as you do at business school. Figuring out business is a lot like figuring out the subway system in a different country where you don’t speak the language: it really helps to have a bilingual friend show you the ropes. But it’s not that hard – millions of people have mastered it – and once you’ve had some practice, you’ll wonder what you were ever afraid of.
What is innovation entrepreneurship?
People tend to talk about startups and innovation in the same breath. But are they the same thing?
We define invention as making something new. But it’s not enough to be an inventor: plenty of inventions never see the light of day.
We define innovation as making something new that lots of people actually use. Innovators find users for their work. But even that is not enough: lots of innovators died penniless.
We define entrepreneurship as the making of a business.
Your job is, therefore, twofold.
The first part is innovation: to make some (new) thing people want. A service, product, platform, or medium.
The second part is entrepreneurship: to create an organization and build a business – with paying customers – around that innovation. To build that machine that pays your wages, and everybody else’s on the project!
That’s innovation entrepreneurship. That’s your job as a founder.
Note that the second part is kind of a scaled-up version of the first.
If you can make a business with paying customers, that makes money when you’re not around, then you’ve made a thing that people want. The people are investors, and they’ll want to buy a piece of your company.
What is a startup?
Steve Blank says, roughly, that a startup is a temporary organization formed in search of a sustainable and scalable business model.
Your startup must not stay a startup forever. Your job is to search for and find that business model. Once you find it – once you’ve found marginal profitability, once you can cover salary – your job is to do everything in your power to scale that business to the largest possible market. If you want to make the world a better place, you have to bring the benefits of your innovation to as many users as possible. Not just in one country, but in many countries. Not just for one kind of user, but for many kinds of users. If business has a moral imperative, this is it.
You should want your startup grow up and become a big company. You may not enjoy working for a big company; that’s fine. At every stage in a startup’s life, there’s an ideal executive team. And if you don’t match that ideal, it becomes your job to fire yourself and find someone else who does.
If you’re new to startups, you should go read all of Paul Graham’s essays, from oldest to newest.
The Four Stages of a B2B Startup is also useful: first Product/Market Fit; then Repeatable Customer Acquisition; then Growth Maximization; then Profit Maximization. Somewhere between stages 2 and 3 you stop being a startup and you become a real company.
The majority of JFDI startups are at the stage of Product/Market Fit, so we’ll talk a little about that.
The Three Tests
Before you get seed funding, your startup must prove three things.
First, you must prove that you understand a problem worth solving.
Second, you must prove that you can build a solution that fits the problem.
Third, you must prove that the market is willing to pay for your product. It must be a large and growing market, not a small or shrinking market. And the customers must be willing to pay at least enough revenue for your company to pay salary to staff, or the machine won’t run. Usually venture investors are only interested in businesses with bilion-dollar potential – not lifestyle businesses. They want unicorns, not horses.
If you can prove these three things, then your chances of raising follow-on funding are very high.
The first is a test of who you are – what you’ve done in the past, and what you know that others don’t.
The second test is a test of what you do – what you can build today. You should already be a practising expert in agile product development. During the 100 days you’ll be expected to build, launch, and iterate your prototype in contact with actual users.
The third is a test of what you believe. It is a test of the future. Customer development lies in the realm of experiment. Your startup should be one of the first to discover whether the market is willing to pay for your innovation. If it is already known that the market will pay for your category of product, then in all likelihood there are already so many competitors that an investor would say, “crowded space”, and walk away.
When you pass all three tests, you are ready for business development: to shape the business as an investment proposition. Your business should be ready for takeoff: seed investment will add enough jet fuel for it to grow your team to 20 people and one to two million in revenues. Twelve months after that you should be ready to expand globally and fulfill your moral imperative.
We invest in teams which we believe will find a scalable, sustainable business model.
We invest in teams of autodidact polymaths who have an idea which looks like it’ll be able to make the world a better place for a lot of people, in a way which allows you to build your machine and pay yourself a salary that’s at least twice what you could make working for someone else.
Your first idea might not work. That’s why we look for domain expertise on the founding team – they should have done enough and lived enough to spew out lots of good ideas that are thematically connected in some way, so that even if one idea doesn’t work, the next will. (Edison tried hundreds.)
We can go into detail about our investment theses, but that would make this way too long. In short, we look for innovations that are in Asia, for Asia, or global, located within a nascent industry which is about to cross the chasm from early adopter to early majority thanks to some new technology or market trend which makes a previously impossible act newly possible, reliable, convenient, or affordable.
Or, put differently, we invest in platforms and services which exploit technological change to create new markets.
We look for concepts that are riding some kind of wave.
Steven Johnson applies Stuart Kauffman’s phrase, the adjacent possible, to innovation.
From a technological-determinist point of view, every innovation depends on some prior enabling technology. Once one jigsaw piece falls into place, it immediately attracts a horde of suitors who vie to be the next piece in the puzzle.
Examples.
Cloud and mobile are a big wave. They’re disrupting all kinds of industries. Dave McClure’s advice is to just pick an industry that’s slow and broken, and go fix it. Fintech. Legal. Education. Health. Those are the big ones. And they’re changing in different ways everywhere in the world.
If you aren’t riding a big wave, then why are you committing the next 5 years of your life to this?
Starting your company is going to be a huge effort. If you’re not standing on the shoulders of giants, if you’re not doing something exciting and new, if you’re not about to change the lives of millions of people … then why bother?
http://humbledmba.com/startups-in-stealth-mode-need-one-piece-of-ad
It takes a certain emotional maturity, a unique combination of ambition and egolessness to say, “there is a big thing that is happening, and we want to be there when it happens. We’ll be swept up in it, and we’ll help to shape it, but it’s going to happen with or without us.”
Why Venture Funding?
Big waves need big boards.
if you are riding a big wave, then how can you ride it without the appropriate level of funding? Maybe somebody else who who out-capitalizes you will ride the wave better. is that what you want?
Your sense of urgency should emerge naturally from the presence of competitors. If there are no competitors, maybe there isn’t a wave here!
We select for coachable teams who are open to feedback – ours and the market’s.
If you’re pretty sure about the shape of the product you want to build, and you already know all the ways through which you will reach your users, and you have got the next 12 months all planned out, and nothing is going to change your mind, then you should just go ahead and do it on your own, because the JFDI experience would only slow you down.
Our mentoring comes in the form of mentor talks, usabiility tests, pro forma preparation, deck and executive summary development, and investor pitch coaching. We spend as much time as necessary with you, yet as little time as possible – because you have plenty of your own work to do!
We look for founders who tend to teach themselves new things by reading a lot. While our classes help, we share most of our knowledge in the form of books and blogs. You have to do your part and keep up with the reading! If you find this essay too long and painful to read, then we might not be a good fit for each other.
Domain expertise matters.
You can’t just brainstorm a concept and expect to be able to take it to a billion in revenues. Howard Hartenbaum calls these “whiteboard startups”.
Why? Because somewhere out there is a team that didn’t come up with the idea from a 3-minute brainstorm; they came up with it through 3 years of feeling the pain themselves.
This is why we usually don’t accept teams that are fresh out of school, because they don’t have domain expertise.
There are exceptions. if the domain is software itself, that’s ok. Software is one of the only fields in which you can be wholly self-taught and operating at a professional level at the age of 22. Look at Heroku. Those founders knew what the market wanted, because they were scratching their own itch.
If you’ve already spent those 2 years climbing the learning curve, then you’re welcome at JFDI. We’re all sinners here.
But if you haven’t got domain expertise – if you haven’t got 10,000 hours becoming so thoroughly familiar with a field that you’re eager to push the envelope – then innovation will not be easy.
Generally, founders who pick some random idea out of the air will spend the first 2 years of their startup gaining domain expertise the hard way. Few investors want to fund that expensive education.
You can do it on your own.
JFDI doesn’t teach anything that’s not already been documented in dozens of books and blogs.
For the majority of B2C app startups, the first two stages – customer development and product development – are things that you can do with your team at your pace. Only after your prototype succeeds and is starting to pick up users, will investors become relevant to your life. Only at that point should you come to JFDI. We’ll put the finishing touches on your proposition and help you tell your story so you can get the next million dollars in funding with minimum effort!
If you’re new to Lean Startups, read Running Lean by Ash Maurya.
If you’re new to Agile Development, read The Art of Agile Development.
If you’re new to startup culture generally, you shoud know that the pace of work can be extremely intense and emotionally taxing. Read We Need a Social Contract for Working at Startups. And The Hard Thing About Hard Things.
You can do it with JFDI.
Why might you not want to do it on your own? The intensity of acceleration, the serendipity of mentors, and the camaraderie of working flat-out in the company of your peers, are factors that combine to give your startup a leg up. If you’re riding a big wave, and going after a juicy opportunity, then you know that you could use every bit of help to get to the finish line sooner than the next startup.
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