Learn more about Jonathan Lowenhar at ETWadvisors.com.
Well-run startups have a rhythm. It’s unmistakable. They either have it or they don’t.
I’m not talking about engineers rocking Bach on noise canceling headphones. The rhythm is a cadence by which well-run startups operate. Every founder I know can recite some version of this cadence from memory yet too few practice it with real discipline.
Why is the rhythm so hard for founders?
Imagine a rock band trying to write a new song.
But they don’t have all the instruments they need,
So they try building them,
But they’re already on stage,
And the fans are yelling at them,
And there is a more mature band waiting backstage,
Tough to perform under those circumstances. Don’t you think?
What is this mysterious rhythm? It’s a set of steps upon which every founder can rely when they feel lost on stage and the first rotten piece of fruit whizzes by their head.
Every company follows a similar development pattern: An entrepreneur recognizes a gap in the world worth addressing. S/he socializes the idea until a solution is conceived. A first version of the product is then crafted. Once operational, the entrepreneur then cajoles first users to try it. If the experience is positive, the users will try it some more and perhaps even pay for it.
But a product that solves a need is not quite enough — the question turns to whether s/he has a potentially profitable business. That starts with determining how to attract, win, deploy, and support customers in a profitable and scalable manner. Got all that?
But we’re not finished.
If you’re fortunate enough to have the market start coming to you, enemies will take notice. You’ll need to grow like crazy to stay ahead of the pack and eventually find a sustainable way to hold on to your lead.
To find your rhythm, you first must have an honest assessment of where you are in the journey. If you’ve not yet proven your product works, then focusing on user acquisition is not going to help your cause. If your per-unit economics are not profitable, then growth just means lighting money on fire.
Which stage are you in?
Every life stage has an accompanying set of objectives that, if achieved, allow the startup to advance. The key is to align your milestones to your stage. Work with the end in mind. Below is a simple cheat sheet that shows both the typical milestone and the most common mistakes founders make for each stage.
The milestones and the measurement columns I suspect are self-evident (if I’m wrong, by all means, drop me a note). And don’t worry, I’ll expand on the last Common Mistake column following the table.
Common Mistakes for Each Stage:
Field of Dreams — An Iowan corn farmer hears a voice in his head, and instead of seeking anti-psychotic meds, he builds a baseball field in the middle of his precious crops pushing his family to the brink of bankruptcy. It turns out ok for Ray Kinsella and his wife, but for most entrepreneurs, the fastest path to financial ruin is to build a product first and find customers second.
Misktake Curiosity for Need — Here is the most sinister sentence an entrepreneur can hear, “Your product is interesting.” The naive founder is elated. They think they’re on the right path. The veteran founder knows better. “Interesting” often leads to death. Why? Because, people are busy. If you’re going to get them to use, let alone pay for your product, it better be more than interesting. It better be intoxicating. Interesting products lead to slow sales cycles, low engagement metrics, and middling customer references. Forget interesting; find a product that customers cannot live without…
Fear of Pricing — Charging money feels awkward and risky. A founder’s product is his/her child. Charge anything, and the chance his/her baby gets rejected rises considerably. So the founder discounts the fee sometimes all the way to zero. That tends not to lead to a very attractive business model.
Not Identifying Your Ideal Customer Profile (ICP) — If everyone is your customer, then no one is your customer. To find product market fit relies on discovering a pattern — it starts with a certain type of customer with a specific pain for which you have a solution. But the novice founder wrongly worries about a market size too soon, forgetting Zappos only sold shoes, Amazon only sold books, and that Facebook was originally just a dating site at one school years before world contamination domination.
Rely on Stories Over Data — I just wrote about this one…
Poor Capital Planning — Wildly ascending companies that need gobs of capital often hit a crossroads. As the sizes of subsequent capital raise increase, the number of potential providers shrinks, and those that do remain to care more about profitability than compared to their earlier-stage brethren. Balancing the top and bottom lines requires a deft touch. If capital planning goes sideways, you might find that you built a great company yet failed to earn your just reward.
We’ve all seen the movie where the astronauts realize that something terrible has happened to their vessel. There’s a leak. Oxygen is depleting or CO2 is rising and death will occur in <insert disturbingly short amount of time>. The actors first stress, then fight, then band together to uncover an incredible yet unorthodox solution just moments before asphyxiation.
Your startup operates the same way. You have a limited amount of oxygen (aka capital) and must achieve your next milestone in time to survive. To win this game requires math and to do that math first you must ask yourself a lot of questions.
Great entrepreneurs obsess about their math. They write down the answers to the questions, build a financial model, and then review it relentlessly. Startup graveyards are filled with founders who failed to heed that advice.
Now it’s time to get to work. But first, we need some help. Despite the founder’s tendency to play hero (often at an unsustainable pace), no great lasting company is built on the back of just one person.
This exercise is straightforward. To determine which skills you can rent versus the ones you need to buy. For the hires, build a sourcing plan. Once prospects start showing up, make sure to interview well and balance your various internal teams. For the consultants, first document with as much specificity as is reasonable the desired timeline, deliverables, and budget, and then post a brief description to your socials. You’ll be bombarded with options across agencies and freelancers alike. Pick a few, hold brief interviews, and, most importantly, check references. Repeat until done.
All that matters is finding product market fit. You must know to whom you are selling, and you must prove that your solution solves a pain. The faster you can experiment, the more rigorously you can measure results, and the more honest you can be about what you’re learning, the more tests you can put out into the world. Then you have to hope one of those tests results in magic.
We tell our early-stage founders that virtually every one of their assumptions very likely will be wrong. That’s ok. They only have to be right about one thing to have a chance at a business — the identification of real pain. From there, it’s just about work — relentless, obsessive work.
If looking for guidance on how best to structure that work, there are many quality frameworks to follow — examples include The Lean Startup, OKRs, and Bullseye.
For folks unfamiliar with startup life, it’s hard to appreciate what’s unique. On the surface, startups look like other companies, just smaller and with more hoodies. But for those of us that have experienced both mature companies and fledgling startups, the gap is cavernous.
Startups battle two unique existential threats — scarce access to capital and founder burnout.
Mature companies typically are profitable; more cash flows into the business each year than flows out (shocking, I know). They not only can use their own cash flows to grow, but they can access external capital for the purposes of scaling production, acquiring companies, or entering new markets.
Startups almost universally hemorrhage cash during their early growth years, and fundraising is more of a dark art. Companies with very little history seek capital from a small set of investors who must divine future performance from de minimis data. Some of the world’s most famous current companies struggled initially to entice investors.
Beyond the vagaries of fundraising, young companies face another ever-present threat — important people might quit. For mature companies, one resignation never spells doom. Sure, markets might react, the stock price might drop, and analysts might fret, but the next day the company will open for business again. That is not always true for startups where just one departure might be cataclysmic.
So how do you make enough progress before your capital and emotions run out? The founder has to apply a huge amount of energy in the most efficient way possible. That means following a set of steps in partnership with an assortment of others — from customers to employees to investors.
Startups somehow evoke for the founder a sense that everything is possible and impossible at the same time. There is no simple answer to the combination of ingredients that must come together for your company to ascend into the land of unicorns. There is just a ritualistic adherence to a set of steps by which to experiment, learn and progress fast enough so that you don’t run out of money or sanity. We call it finding the rhythm. Care to dance?
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