When It’s Time for No

No

By Tom Fedro

I can remember working through the process of creating filings in order to take a startup public, and we were well on our way to making it happen only to have things change at the last moment and end up taking an acquisition offer as our way to liquidity and value to our shareholders.  I remember making my first OEM deal with a major PC manufacturer.  Those were (and still are) exciting times.  Something happens along the way, though.  When we started to succeed, we were now being pursued by the money as opposed to the other way around.

If you’re in the midst of starting your venture, or if you’ve been through the process; you already know what an exciting and yet desperate time it is.  Conferences, meetings, speaking engagements, marketing partnerships of tenuous value, and activity—a ton of activity—and it’s really somewhat of a scattergun approach.  All of this activity is designed to expose you to investment and to create buzz, and the hope is that something will come from it all.  If it doesn’t cost a fortune to attend (and sometimes even when it does) you’ll be there.  Some startups never make it past this stage.  Investment money doesn’t come in fast enough or the business just doesn’t take off.

I’m convinced some startups should be past this stage but just can’t break free of it.  If things go as you hope, there will come a time when the value of the exposure activity and the frenetic pace of presentations, conferences, and endless cash-less marketing meetings will be worth far less than the effort expended.  You may react differently, but when that time came, I was confused and unable to immediately recognize it.

Where are you in the development of your company, and are you behaving like you’re still a few steps back?

Nobel Prize Winning Advice

Nobel Prize

William Faulkner, recipient of the Nobel Prize for Literature said this when interviewed by the Paris Review:

Let the writer take up surgery or bricklaying if he is interested in technique. There is no mechanical way to get the writing done, no shortcut. The young writer would be a fool to follow a theory. Teach yourself by your own mistakes; people learn only by error. The good artist believes that nobody is good enough to give him advice. He has supreme vanity. No matter how much he admires the old writer, he wants to beat him.

It’s interesting to look at a quote from William Faulkner and think about it in terms of technology startups, but bear with me a moment.  I’ve been involved in multiple startups, and the one thing never lacking is advice.  I should rephrase that.  The one thing never lacking is advice filled with criticism and warning.  The business sections of bookstores are filled with it and filled with “revolutionary” solutions to every problem and issue one could face in business.

Before you get ready to leave me angry comments that we’re not writers in the technology startup world, I recognize that.  However, I think there are parallels that can be drawn.  I really want to focus on the part that begins with “Teach yourself…”  I think the one quality I find in all successful entrepreneurs is an absolute refusal to believe in the possibility of ultimate failure.  They recognize there will be minor failures along the way, but they refuse to believe those minor failures indicate the overall failure of the concept or the plan.  On the contrary, their mistakes are worn like a badge commemorating experiences that will lead to eventual success.

I’m not against receiving or asking for advice, and I think that’s probably the difference between being a writer and a businessman, but I have to confess to that supreme vanity Faulkner discusses.  What is more vain than believing you can take a business concept and turn it into profit?  What is more vain than believing your product can revolutionize an industry?  What is more vain than believing your grand plan will succeed where thousands before you have failed?

I suppose what it comes down to is one simple fact.  Entrepreneurialism requires at its very core a bit of a willful (to use a literary term) suspension of disbelief.  We take our doubts and those expressed by others  and drive them deep below the surface.  Sure, they’re there, but we act as though they aren’t and drive forward to make our dreams reality.

The Most Important Entrepreneurial Choices

Entrepreneur

I’ve read a great deal about entrepreneurs, and almost everything focuses on that “aha” moment when an idea came to someone and how it then became the driving force that created, changed, revolutionized, or otherwise altered a business segment forever.  With all the press this moments gets, the focus on the incredible stroke of genius, it’s natural to assume that the make it or break event in any start up comes with that first thought conception.  I’m not so sure.  Okay, that was me being polite.  I have stronger feelings. I’ll admit it.  I’m actually pretty sure that moment is the least of the three most important decisions you can make in a startup.

I’m not suggesting the moment isn’t necessary, just that there are thousands (maybe millions) of brilliant business ideas that never result in a successful company, never change the world, and never alter a business segment at all.  History is filled with brilliant ideas that never got to the market.  Without the idea, the company can’t exist, but even with the idea there’s just no guarantee the company will succeed.  I believe there are three critical choices, and the idea, while critical, isn’t as defining as the first two.

To create any startup, you’ll need to find investors and find partners.  You’re stuck with those two decisions.  A concept will (and should) adjust as market and production realities impact decision-making.  If you have the wrong investors or the wrong partners, the brilliant dream becomes a nightmare.  If you secure too little capital or too few human resources, the brilliant dream fades.  The idea is important, and it will likely drive your company culture and attitude, but without good decision-making when it comes to the first two decisions, the idea joins the other unrealized dreams in the annals of history.

How about you?  Are you looking for the right investors or just any?  Are you seeking warm bodies or are you actively seeking partners whose strengths will help support your weaknesses?

Does it seem like I’m telling you not to focus on your core business?  That’s not my intention at all.  Hang on to your idea.  However, in a business environment where most technology startups are going to fail, don’t let your aha moment go to waste.  Choose your investors carefully.  Choose your partners carefully.

The Value of Minor Failure

Value of Failure Oops

By Tom Fedro

Innovation is risky business.  Perhaps a better way to phrase it would be, “Innovation is messy.”  We come up with theoretical ideas we believe are brilliant and hold onto them, doing everything we can to transform the world until our brilliant idea is the standard.  Far too many of us hold to our idea no matter what the market or the industry tells us in response.

Mark Otero, the co-founder of KlickNation had a different idea.  He quit his job, cashed in on his retirement, sold his house, and opened a yogurt shop.  The frozen yogurt kept him alive while every dime of profit and every spare moment went into programming mobile game aps.  It seemed to do well for a while, but after thirty products and shrinking revenues, he had to change tack altogether. So, after thirty games that didn’t take off, he made game number thirty-one, this time for facebook.

By the end of 2009, Superhero City pulled in $5000 per day and KlickNation was an unmitigated success.  Then came a multimillion dollar deal with NBC Universal.  After that, a $35 million dollar sale to Electronic Arts.  Now, he heads up EA’s BioWare Social division.

What strikes me as truly brilliant is the way Otero responded to failure with adjustment and business plan modification.  He said in a presentation to the alumni department of his alma mater, UC Davis, “When you have thirty failures, you are either a madman or you are onto something.”  Is it any wonder, with that attitude, that he’s succeeded?

The idea of learning from failure isn’t new, but almost all that’s written on the subject focuses on catastrophic failures from which a battered entrepreneur pulls himself up to brush off his clothes and face another day with dreams intact.  Otero’s measured approach to regular postulating, testing, adjusting, and starting all over again isn’t about overcoming obstacles.  It’s about good business.  I recently wrote a post about my faith in the Shewhart Cycle and the impact of hypothesis testing in business.  Perhaps there’s no clearer example of a technology startup that followed that path to success than KlickNation.

What are you doing?  Are you actively testing assumptions and learning from minor failures?  Are you putting any of your assumptions to the test at all?  Do repeated failures crush your spirit or do they drive you to create new assumptions, new tests, and new paths?