

Startup Lessons I Learned the Hard Way - dcancel
http://davidcancel.com/3-startup-lessons-i-learned-the-hard-way/

======
wensing
Fred Wilson was the first one to clue me in to the "Valley of Death" phase. He
expands on it here: [http://www.avc.com/a_vc/2010/05/from-hopes-and-dreams-to-
the...](http://www.avc.com/a_vc/2010/05/from-hopes-and-dreams-to-the-real-
thing.html)

 _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._

------
coryl
_They are so paralyzed by the fear of failing that they spend every waking
moment reading Techcrunch (don’t do it, please) and other blogs, reading
countless books and attending startup events all in the quest to learn some
“secret” they think is going to help them succeed._

Haha, true. Although I read publications because they have interesting ideas,
sometimes its hard to recognize advice in perspective; ie. a VC will say
something completely different from an entrepreneur. Frankly, even
entrepreneurs in different industries will say things that contradict one
another. The problem is when everything is rational AND the entrepreneur has
credibility. And then theres the case of people blogging advice when they
shouldn't, ie. startup guys giving advice about hiring and building culture
before they've even left their own garage.

Sometimes you just gotta put your head down, forget all the "lessons learned"
blogs and and go with your gut.

------
jasonwocky
"Believe me failing sucks really bad but there are no repeatable patterns that
lead to startup success."

Maybe not, but there are definitely repeatable patterns that lead to startup
failure. Time familiarizing yourself with them can be time well-spent.

------
MrFlibble
Sorry to disagree, but saying, "Business plans are always wrong so stop
obsessing about them!" is a foolish and cocksure attitude and a good way to
suddenly get hit with a dreaded, "oh, I didn't think about that" moment when
the fecal matter impacts the turbine as Mr. Murphy pays you a surprise visit.

Sure you may not need detailed 3 year financial projections or spreadsheets
coming out your ears, but if you don't have at least a basic plan then you run
the risk of having to handle issues you should have seen coming if only you
had a basic plan. Writing a plan is as much for the Founder as it is for any
investors and only fairly experienced businessfolk can really get away with
skipping it.

~~~
nl
_The plan is useless; it's the planning that's important_ \-- Dwight D.
Eisenhower

I interpret this to mean that the planning process forces you to understand
the problems you face, and that _understanding_ is what lets you adapt to
changes in circumstances.

------
jeffmiller
This is the one I always have to learn the hard way: "Focus all your energy on
solving a critical problem. Forget your idea."

It's so true, yet such a bitch to put into practice. Cognitive biases conspire
against you--especially the sunk cost fallacy, because forgetting your idea
often involves throwing away finished work.

My hope is that by getting burned by this enough times, I'll sharpen my spider
sense about when I'm not focusing on solving a real problem.

~~~
sabat
_Nobody cares about my idea, and they don’t care about your idea, either.
Nobody._

I'm not sure why there is a difference, in Mr. Cancel's mind anyway, between
"your idea" and a problem that needs to be solved. Your idea should = a
problem to be solved. If it doesn't -- what the hell's your idea, then?

~~~
jeffmiller
Dream versus reality. Your idea always starts out as solving some supposedly
critical problem, but sometimes you're the only person with that problem. Or,
the idea evolves over time and takes on bloat. I interpret dcancel's comment
as: find a demonstrably critical problem that people have, then focus like a
laser on solving that one thing. It's damn good advice.

------
grinich
David Cancel also had some great points during his talk at Startup Bootcamp at
MIT this fall.

You can watch the video here:
[http://www.youtube.com/startupbootcamp#p/c/A978F0F30D190EF9/...](http://www.youtube.com/startupbootcamp#p/c/A978F0F30D190EF9/10/5lQ1NBUU_Us)

------
neworbit
Business plans may be mostly fluff, but execution plans are pretty essential.

------
saifa
dcancel, thanks for great post... not really optimistic, but practical and
realistic thoughts.

------
HilbertSpace
WHERE did you get this

"what you think would be cool to build"?

What the heck does "cool" have to do with anything important?

This "cool" stuff is from what, some view that hacker entrepreneurs are prone
to ignoring reality in favor of some oblivious intellectual self-abuse and a
desire to insult and denigrate them?

Let's f'get about "cool".

You wrote:

"Your idea doesn't matter."

and

"Focus all your energy on solving a critical problem. Forget your idea."

You have some undefined but clearly confused, obscure, and highly negative
conception or definition of an "idea". Such an "idea" is irrelevant, so let's
set it aside.

The definition of a relevant 'idea' is one that enables, permits, or says how
to solve "a critical problem". Or curing some deadly variety of cancer is "a
critical problem", and an important "idea" would be how to do that.

Or, much of the REASON a "critical problem" still needs to be solved is that
finding an idea good enough to solve the problem is too hard.

So, if we are attacking what is clearly "a critical problem", then the "idea"
DOES "matter" and is crucial -- the idea needs to be GOOD, and finding it will
likely be hard.

In denigrating an "idea", you appear to have bought into some common nonsense,
especially spread by Guy Kawasaki, that "ideas are easy; execution is hard".
Wrong, wrong, way WRONG, Guy.

Here Guy likes to insult, denigrate, and run down entrepreneurs, and that is
common on his side of the table. Or, that side of the table likes to claim
that much of what the other side of the table has is worthless.

Actually, GOOD ideas are HARD, and, then, execution is routine. BELIEVE ME, if
you have a GOOD idea for curing some deadly variety of cancer, then the idea
was hard, hard enough that so far some thousands of well funded, very serious
biomedical researchers have missed it for some decades, and execution is
routine, or many patients and their families and physicians will be knocking
your door down as the last chance not to die yet.

Yes, with an easy idea, execution will likely be hard.

A charitable explanation for saying

"Your idea doesn't matter."

or

"ideas are easy; execution is hard"

is that someone really just has not even a weak little hollow hint of a tiny
clue about what constitutes a GOOD idea or how to find one and to know that it
is good; but there are ways to do these things: The work is essentially
'research', and the education for it is called the Ph.D. The all-time, unique
world-class, grand champion for such ideas is the US DoD, and the NIH is not
far behind. So, thankfully for US national security, the US DoD, and
thankfully for US health care, the NIH, have for decades identified GOOD ideas
and pursued them with high effectiveness.

A good DoD example is GPS. Yes it started as 'just an idea', but it was backed
by some quite solid mathematical physics that permitted evaluating the idea.
The 'idea', and actually nearly every good idea pursued by the DoD, is
presented and evaluated first just on paper. So, in such work, the concepts of
'traction', prototypes, 'product-market fit', pivoting, etc. are all just
silly; instead, the project gets evaluated just on paper long before
'traction', etc.

We CAN present and evaluate good ideas just on paper; learning how is much of
why we go to school; that's part of what Ph.D. people do.

Uh, here's the little secret: It is human nature for people to run out of
money.

Or, 'the story of America is rags to rags in three generations'.

Or, suppose tough, hard working, determined Joe from the wrong side of the
tracks builds a company worth $800 million and then falls over dead from a
heart attack and/or overwork. So, after the lawyers get their pieces, Joe's
son Tom takes over the company. Too soon, via ignorance, simplistic thinking,
lack of hard work and determination, high maintenance, fast women, slow
horses, fast cars, nasty divorces, liquid pleasure, funny, smoky stuff,
weekends in Vegas, Tom has the company losing money.

So, the other family members, seeing that they might have to go to work
instead of just suck at the teat left by Joe, contact a private equity (PE)
firm that agrees to buy 80% of the company for $40 million. Tom gets to
'pursue other interests'.

The PE firm brings just basic responsible business management, nothing more,
cuts out the nonsense, gets the company worth $600 million, and sells it.

Why? Human nature. There are only a few people like Joe and a lot of people
like Tom.

So, what about 'venture capital' (VC)? PE with a twist: Again much of the key
is that commonly people run out of money. So, a VC firm can say that they are
looking for passionate, visionary, etc. entrepreneurs. Why? Because the
startup CEO is eager enough to see himself as passionate, visionary, etc. and
because the VC firm wants the CEO to believe that VC firm is investing in the
'visionary', etc. CEO, his 'disruptive idea', 'secret sauce', etc.

The VC firm is just doing a routine manipulation; they are emphasizing the
sizzle and not the steak. The VC firm is just looking at a way they can buy
low and sell high, and their main way is that the CEO, as is human nature, ran
short on money. It also helps if the CEO and his team are a bit naive,
gullible, and easily manipulated.

Keeping money is hard. Building a valuable business, including finding the
good idea, is hard, and keeping the business is also hard. There are lots of
ways to throw money away that are not seen by poor people but make themselves
known to rich people! Anyone who both made a lot of money and kept it avoided
many opportunities to lose the money.

In particular the VC firm (I'm assuming information technology not biomedical
technology) cares not at all about 'the idea', the 'secret sauce', etc. and
will refuse (and, really, is nearly totally unable -- they are commonly just
history majors, and only a tiny fraction of VC partners have any serious
technical qualifications) even to evaluate it and, instead, just looks for
some simple numbers: The main numbers are ComScore numbers and their rate of
growth. That is, they look for 'traction'. Or, good traction and a good 'idea'
are nearly as good as just good traction alone. Or the future value of the
business and the idea are conditionally independent given the traction.

Why do the VCs do this? Because they, and their limited partners, understand
and trust in human nature MUCH more than in technology or secret sauce.

It remains: For a successful business, the idea is just CRUCIAL. Yes, it is
essentially true that the idea matters only to the founders and not to the
VCs, but still the idea is crucial. That VCs ignore ideas is just that they
have (or at least have had until the losses of the last 10 years, and still
hope to have) a way to make money easier for them and that they and their
limited partners do understand -- exploit human nature and take advantage of
gullible CEOs.

Or, rule out everything else and what remains, however improbable, must be the
truth!

For reading Tech Crunch, HN, blogs, Fred Wilson, etc., that is very thin and
watery material, much of it very wrong, but a little of it is worth knowing.

For

"There is no secret to startup success."

of COURSE there is: Else success is all just blind luck (which we can't
believe) or many more people would be rich.

For

"there are no repeatable patterns that lead to startup success. None."

yes there are, but, of course, they are difficult to see. The US DoD sees
them, and so does nearly all of the applied research community, but nearly no
one in information technology entrepreneurship does.

Yes, even though there are repeatable patterns, not all successes will fit any
such patterns.

Actually, when looking for exceptional events, which, of course, successes
are, empirical distributions and averages are not very important.

So, as is common, the more important 'intelligence' about such things is
beyond empirical distributions. Or, that Langley fell into the Potomac and
that many others had failed for many decades didn't mean that the Wright
Brothers had to fail.

How did the Wright Brothers know? They designed and built a good wind tunnel,
did good lift, drag, and thrust calculations, and made good progress on the
crucial issues of three axis control. So their 'pattern' was to take advantage
of some basic physics. Sadly they did not understand Reynolds number so had
two thin wings instead of one thick one.

The pattern remains: There are ways to know.

For your

"just f __*ing do it (#JFDI)."

no: You are proposing just blind, passionate irrationality. Instead, plan well
enough to see your way fairly clear to success; then measure twice and saw
once. Or have a carefully worked out flight plan WITH reserve fuel and
alternate destinations. Charles Lindberg did. Of course, if you have no way to
see your way clear to success, then you will have to proceed with just blind
passion.

Even Fred Wilson will advise, quoting roughly, "If you don't need venture
capital, then you shouldn't take it."

