What’s always missing (or early failure signs for entering the VC-game)
Signing a deal with a top-tier VC it’s tough. Knowing how to do it it’s not easy either, even though there is a lot of literature online.
We’re learning a lot through VCs experience. However, VC learning cycles takes ages. VCs rely on a small set of data, based on their portfolio. However, we are learning a lot from what VCs are telling us. Our primary literature is coming from them.
VCs discard quickly startups that don’t fit what they are looking for (that’s their job saying “no”). They focus on the distinct type of founders that should win the VC-game (=exit). While witnessing how the potential winners evolve, they also observe why startup fail. However, we don’t hear much about it. It’s tricky to speak about it publicly. VCs also want to make a good impression, so they avoid talking about it. There is a lot of things to learn from the dark side of the VC-game.
We also don’t hear much about the startup that didn’t fit the VC-decision-framework. Those startups are also from the dark side of the VC-game. Again, it’s a shame that we do not dig further into the faith of those startups, because there is more startup not being VC-compatible that the compatible ones. Saying “a lot,” it’s a euphemism. There are thousands of startups not entring it, compare to the only few that get into it. Again it’s quite clear that there is a lot of things to learn.
What could be deadly
My job is to be between the startups and the VCs. I am helping startups to understand the VC-game, through a homemade VC-compatible-diagnostic, and after that, help them design the right progress roadmap to get to the right level to enter the game. So I see a lot of non-compatible startups. But unlike VCs, I spend more time with them, trying to fix what’s broken 🚒.
From the thousands of startups I have checked, and the hundred I have helped, here is what I have learned about what could be deadly for a startup aiming for the VC-game:
- Targeting too many different types of clients
- Too much focus on selling to big corporations
- Not knowing the PMF concept and not acting accordingly
- Not spending enough time with clients and users
- Founders not able enough to build the first product themselves
- Getting too fat too early in the term of staffing
- They leave too many options open
- Taking too long to take drastic decisions
- Not obsess enough with the field they want to transform
- Not thinking big enough
- Behaving like a classical company
- Trying to solve “a not that painful problem” on “a not big enough” market
- They want to fundraise to get comfortable
- Building and following a business plan
- Wasting time looking for reinsurance from institutional programs
- Spending too much time getting financial aids
- Not understanding properly the VC-game
Targeting too many different types of clients
If founders don’t know who to target first, is that they’re still learning about the industry they’re trying to transform. Maybe they are not ready yet to build a fast-growing company. Targeting multiple targets is a waste of time if your resources are limited. You don’t learn enough from one vertical, and you make your business equation more complicated, almost unsolvable.
Too much focus on selling to big corporations
That one is one of the foremost common belief: “If I sell to a big corporation, I will reach the entire company.” It never happens like that. Big corporations are like black-holes; you can escape from it when you start dealing with them. They are so attractive, their gravitational force is so strong (=open innovation). Time and space are different from a startup.
Not knowing the PMF concept and not acting accordingly
PMF = Product-Market-Fit. This concept is key for startups that want to grow fast as soon as possible. How to reach this tipping point is blurry, and the approach is not straight forward. However, learning about it, and trying to apply its principals, help founders to be more focus and less prone to distraction.
Not spending enough time with clients and users
It’s time consuming reaching out to clients and spending time with them. It requires discipline too, to allocate time regularly to be with clients and users. Without empathy and developing a real passion for your client, it’s hard to stay strong in the long run and provide them with the right product that they always been waiting for.
Founders not able enough to build the first product themselves
Willing to be an entrepreneur and knowing your industry inside out, it’s not enough to build a fast-growing startup. Building the product yourself is critical to move fast, throw it away if it doesn’t do the job and restart from scratch. It’s central if you want to execute quickly; it’s the main criteria for a VC. Having too many people working on the product that didn’t find it’s PMF, will kill your startup almost certainly.
Getting too fat too early in the term of staffing
This point correlates to the previous point. Most of the time, pre-PMF startups hire too many people. Firstly, to build the first product. Secondly, to boost marketing and sales. The early founder-commando complexify its organization. Managing people takes you away from your relationship with your client. In the end, it slows you down.
They leave too many options open
A classical company focuses earlier on getting to the break-even point, leaves many options open. You never know if a client will be reliable. You have to be ready to play with different business-model. For a startup willing to play the VC-game, it’s the contrary. You have to be laser focus, take the risk to put your eggs in the same basket, and push hard. If you take the wrong path, it could be deadly. That’s why you have to go all the way as fast as possible and perhaps pivot if you still have enough resources. Leaving options open will slow you down.
Taking too long to take drastic decisions
Again it’s correlated to the previous point. Having an attitude that leaves the option open makes founders waiting before killing an option — sometimes waiting too long to have enough data to make that decision. But for startups playing the VC-game, the critical success factor is to make choices without having enough data. Make hard-decision often make the ball moving every day.
Not obsess enough with the field they want to transform
It’s when the tough time arises that you see if one is committed or not. When the storm hits hard, founders that are not obsessed enough, tend to minimize their ambition, cut through their goals, and most of the time stop taking risks. Why risking it all? Well passionated people, obsessed by their craft, will not give up. On the contrary, they will double down on training, learning, and pushing the thing further. They cannot stop till they reach their goal: transforming a broken industry.
Not thinking big enough
It’s crazy to think big. Our biological tendency is to play safe. Our education teaches us to build projects appropriate to our level. In the VC-game, we look for the contrary. But it takes a lot of courage to be bold and ambitious. Our surroundings will undoubtedly point the finger at us. Not being affected by those behaviours is hard. So it’s essential to be in the right environment, surrounded by people that think as big as you.
Behaving like a classical company
Not every company are made equal. The term startup, as a wide range of definitions. A startup that plays the VC-game is not the same as an SME or a classical company, that need to be break-even quickly and generate enough profit to fuel their growth. However, many startups follow the best principles for SMEs, thus designing the wrong mindset and set of behaviour.
Building and following a business plan
If you behave like an SME, you will create a business plan. By following it, you will be disabled to move fast and find your PMF. A business plan is worth it for a company that enters a well-defined market and develop a business model that is proven, which is not the case for startup playing the VC-game.
Wasting time looking for reinsurance from institutional programs
Founders need to live in a like-minded community. Many incubator-coworking-space are well suited for that. They are like a campus or playground. However, not all of them are good for startups playing the VC-game. They are not designed to help them reach the right level. Interests are not aligned, promises are too weak, and their programs are too generalist. I won’t speak here about open-innovation programs or accelerator financed by corporate, but I haven’t seen any that have helped properly a startup for the VC-game (they don’t know the game).
Spending too much time getting financial aids
Many governments are spending billions into financial aids to help startups taking off. The intention is great, but the design to get those aids are time-consuming. I have seen so many startups spending too much time to get them and not spending enough time on their business. On top of that, this money is spent on hiring too soon, which impact negatively the startup that develops a kind of addiction and a burn-rate too hard to sustain.
Not understanding properly the VC-game
It’s not an easy game to understand. Either you have to be a repeat entrepreneur VC-backed (Lunchr, Alan, Lifen…) or a VC (Doctolib, ManonMano…). Otherwise, it’s hard to assess what makes a startup VC-compatible. This game is empirical. You have to practice it, get rejected many times by VCs and learn everything you can online, and by spending time with VCs. So the earlier you expose yourself to this game, the better you will be.