By Brian Tait
Startups are tough business. Companies fail all the time, often because their founders were never suited for the job in the first place. The truth is, even if all the odds are stacked in your favor, your startup will see dark days.
There’s no secret recipe to becoming an ideal founder. But, throughout many years of building startups and working with investors, we’ve discovered some traits that signal a founder has what it takes to grow and scale a tech business. Perhaps surprisingly, these traits have little to do with whether a founder has a software background.
Here’s what we’ve learned.
Strong Domain Expertise
Even pros like Steve Blank have stumbled on this one in the past. Trying to launch a startup as a non-domain expert founder is a kiss of death for your company. Often, a lack of domain expertise results in building products that don’t solve a real problem for your customers or potential clients. When you jump into an entirely new industry, it’s hard to quickly gain the expertise to build a thriving company.
This doesn’t necessarily mean you have to have run a company in this area before. It just means you have developed enough experience to understand the landscape and know the nuances of the industry.
Past Success (And Navigating Failure)
Think an investor is going to trust you to launch a startup and grow it to hundreds of millions of dollars if you can’t point to any previous accomplishments that make you and your idea a trustworthy investment? It’s not a prerequisite that you must have successfully run a different company before an investor will take a gamble on you. But you have to show something to prove you have the business sense to navigate through difficult times.
If you can’t cite at least a handful of things you’ve done in the past few years that set you apart from the herd, then it’s time to go out in the world and get that experience. Moonlight as a business strategist. Write a book. Launch a very simple app for a niche market that solves a well-defined problem, but solves it well. Do whatever it takes to build the credentials that show a track record of success.
One caveat: Your success can’t be easy success. The median exit time of a VC-backed company is about 8.2 years. The path to success isn’t linear and you WILL struggle to reach milestones. Investors want to see evidence that you have what it takes to pull through the peaks and valleys of business success when things get tough. This is also another reason why we love working with domain experts. For example, our client Louis Bickford, who founded Memria, had more than 20 years of experience working in human rights and transitional justice before he decided to launch his impact-driven storytelling startup. This was a great sign to us that he was truly committed to his vision. It’s our belief that if you truly are an expert in a specific domain, it’s impossible to have gotten there without the hard-won learning that comes from making decisions you wish you could take back. Louis has repeatedly proven to us that he’s gone through the struggle and put in his time.
Puts Skin In The Game
Investors often ask us how much specific founders have invested in their businesses. The reality is that very few founders can bootstrap their way to success. Those that do send powerful signals that they have the grit and determination it takes to succeed. However, most founders will need to put money behind their vision to in order to gain any real momentum. And typically, when you’re just starting out and no one believes in your idea, that first source of funding will have to be you.
It’s a great sign to an investor when someone believes enough in their company to put money behind it. Did you say no to that fancy new car so you could dump $20k into your business? If you’re not willing to put your own money into your business, it’s going to be tough to convince investors they should.
If a founder is young or simply doesn’t have the money, then at the very least, an investor might believe that person should be able to get friends and family funding. But if a founder can’t get relatives to put a few bucks into the startup dream, this could cause concern. After all, if hundreds of other founders CAN get friends and family money, a lack of any initial funding may create a fear that your company might not be a great investment.
Of course, these are just signals. Investors will always look at the sum of the parts. Without prior backing, you might have to do a little more work to prove you’re ready to scale a company.
No startup is perfect, but don’t try to hide the facts. If your churn rate is higher than you’d like or your last feature tanked with customers, you may feel compelled to hide that information from a potential investor. But smart investors can see right through tactics designed to hide the truth. The second they figure it out, you’ll get an immediate “no.” And, in an industry where gossip travels quickly, it’s entirely possible that a nefarious pitch could be your last.
On occasion, founders have built huge companies using ethically shady tactics. Just look to Theranos and all its angry investors to find out what happens when a company builds itself on a mound of lies.
When Brazi Bites founders Junea Rocha and Cameron MacMullin had the chance to pitch their startup on “Shark Tank,” do you think they thought their day-to-day sales tactics were enough to impress some of America’s most well-known critics?
Some of their preparation methods sound borderline crazy, but guess what? That’s part of the game when you have an opportunity to make or break the future of your company.
For these founders, pitch prep included: cutting out life-size heads of the sharks and practicing their pitch no fewer than 100 times in front of them; watching every episode of “Shark Tank” and making sure they’d crafted an answer to every question ever asked; and splitting the pitch and questions between the two of them to accurately reflect their areas of expertise.
Rocha and MacMullin walked away with three offers, all because they’d done the legwork to prove they were ready to be thrown in the tank. Doing your homework is integral to your company’s success.
Knows And Communicates The Details
Great founders know all aspects of their companies. They know their products, their customers, their market challenges and their financials. They use data to back any big decisions. When grilled with tough questions, they have great, straightforward answers.
We look for founders who are close enough to the company’s daily activities that they can smell smoke long before the fire starts. If you’ve been leaving all the stuff you don’t quite understand to your Head of Operations to figure out, you may not be the right CEO to drive the company to scale.
If your company is only doing $10k in revenue, you have to make investors believe it can do $500 million. Big thinkers understand where the market is headed. They can clearly explain how their companies fit into the big picture of the rapidly-changing digital ecosystem around us.
If you can’t articulate where you expect the business to be in a decade, no one will sign on to support you that long.
Investors hear hundreds of pitches a year. Extremely active investors may hear thousands. What stands out to them? Founders who can share an emotion-driven story about their startup and how it benefits those around them.
Stories that elicit emotional responses tend to be incredibly persuasive. If you can sell an investor on the story, then it’s likely you can sell it to the world around you, too. Think, for example, of Tom’s shoes, a company wherein the brand story ties directly to a public interest good. Or, think of Casper, a company that redefined the narrative around sleep.
Your startup may be incredible, but you must be able to frame it around a vision for a better world. Otherwise, investors won’t care.
If you’re competing in a crowded space, sometimes you, the founder, will be what differentiates your company from similar startups. Remember: You’re the only person who can truly drive your company to success.