This is a retrospective on my failed attempt to build a startup. I wanted to change the world of wealth management. I wanted to be the next John Bogle, and just as the founder of Vanguard, I wanted to move the needle on accessibility of wealth management to the consuming masses. As it is for many founders, my story was a passionate love affair with my business idea. For hours at a time, I contemplated the systemic problems with our pensions, 401k funds and my brilliant idea for restructuring the retirement savings industry.
My specific goal for that startup, other than to build an operating company, is not the focus of this story. What is relevant is that as happens to many first time founders, I run my startup for far too long, beyond a rational stoping point. I want to share my reflections on how that mistake happens and my take on how to avoid it.
Passion and love are great motivators. However, if you fall in love with your business idea, you are also likely to smother the very business you are trying to build, not to mention you are likely to devote too much time and energy to an increasingly losing bet.
In no particular order, the following problems may arise for you as they did for me:
I became afraid someone would steal my beloved and brilliant billion dollar idea. Trust me when I say that the fear I had was palpable. When I talk to first time entrepreneurs today, there is no mistaking the person who is talking in circles, carefully avoiding revealing any business details that would presumably allow someone to steal their precious idea. When pressed for detail, the founder will ask you to sign a NDA.
The unfortunate result of this fear based protectionism is that it takes you, as a founder, a lot more time to fully develop your idea. Serial entrepreneurs, as well as investors, know that the determination, dedication, and sacrifices it takes to actually build a business are not easily copied. As a founder you stand to gain far, far more from the feedback you get from others than any potential risk you face of someone running off with your idea. I regrettably wasted several months protecting my idea with an NDA. Just talk to everybody. Do it openly and listen.
Intuitively, as a founder you create an origin myth, the story you tell people of how you came up with the idea. As you continue telling this story, to you it becomes the story of a real company, regardless of reality. In reality at this stage we are talking purely about potential and not a business. For you, as the founder, however, the volume of visualizations you have had of your business plan renders your business idea a very vivid and very real thing. Let’s call it your alternate reality.
It does not matter if people love, understand, or even care about your idea. You yourself see the brilliance of your proposed solution. It makes sense to you. As you tell the story, you start wondering how come I am the only one seeing this outstanding solution!?! I must be brilliant!! Inside your alternate reality you are a proud founder, or worse, Mr. CEO. Don’t do this. Retain humility and ask for honest criticism. Pride in your idea is a road to a painful drawn-out failure. The idea might be in fact brilliant but not viable.
Pride locks you in on a trajectory. It may be counterintuitive, but the fact remains that the more time you spend on your idea in absence of finding a product-market fit without creating a functional feedback loop from your customers, the more proudly delusional you become about the beauty of your solution. Going out and testing your product keeps you sane and allows you to adjust your track. Go talk to people. Do it fearlessly and openly before you fall in love with your solution to the point that it narrows your peripheral vision.
Your objective should be to test your idea and start a viable business. It is not just the development of the business idea, but actually the execution: testing the concept and starting the business. In days past, VC’s used to invest in ideas. Over time investors realized that in the process of execution ideas always change. They realized the team that executes is far more important than the idea. Do not try to develop the idea or product over years and then try to build the team in a month or two.
Chances are, if you operate out of fear and with pride, you will have a hard time attracting, building and retaining a functional team. I ended up with a super thought out business plan which I discussed to death, but no one to build a product and thus no product to test. If you shift your objective to test your business idea quickly, you will learn more and go further faster.
Build a team and fail quickly as many times as needed before you develop attachment to any solution. Listen to the team. Remember the objective is not to create the perfect idea, but to test your concept and build an operational company around it. That may take much iteration. It does not mean build another PowerPoint deck! Failing is not only ok, it is a valuable lesson.Your plan did not work. Great! You get to adjust your plan. Better to test and know that now than two years from now when you run out of money. Learn together as a team and let everyone involved evolve or move on.
If you are not open to the possibility of failing quickly, as you generate more and more powerpoint presentations, you may even end up imprinting in your head a very strong brand image of your business idea before you have any product or product-market fit. In that situation, you are done. Chances are your untested idea is not the solution everyone is looking for. However, by that time you may become afraid of adopting any new feedback or any brand change that you perceive might tarnish the pristine image of your imaginary brand. Yes, this may sound funny, but it is very real.
As the proud founder/CEO with a very clear brand image even before the product is built, you identify some team members you think may be good enough to execute what you view as your brilliant, flawless, well developed idea. With high levels of fear that your idea will be stolen and tremendous pride in the thinking behind it, there is only one possible outcome. I overvalued my contribution to what it would take to execute my idea, and I undervalued the contribution of the people I tried to recruit. In that moment, as the founder, you just do not understand why the rest of the potential team do not want to be part of this immense brand and mega corp you have created!? It is quite clear in retrospect and it is rather painful when you see others sabotage themselves like that. I wish I had learned these lessons before and I wish I humbly sliced the equity more evenly among the founding team without fear, to energize all. You are splitting an imaginary pie and there is good material available on how to do this. The key take away here is that splitting equity is an emotional exercise, not an arithmetic spreadsheet exercise. Do not confuse that. Motivate all to grow the total pie, do not create competition for your share.
Since I closed my startup, Stocks You Love, I have also been involved in two other startups. This has given me ample time to observe other founders make the same mistakes I made. The biggest discovery for me was that first time founder lessons are unfortunately not transferable. It is like the first time you fall in love. Everybody needs to experience it for themselves.
In other words, starting a company is experiential learning more than intellectual. Even if you know the theory, took Steve Blank’s and Eric Ries’ classes and read their books and have the right information and advice, you have to go through the motions to sense what’s going on. Just as you cannot learn to play a sport by just reading about it, you cannot learn how to start a company without putting theory into applied practice. Those lessons have to be experienced.
Obviously, it is good to surround yourself with people who are not first time entrepreneurs, as experienced people will have a better feel for what traps to avoid. However, if you fall in love with your idea, there is no guarantee you will be taking any advice from anybody. Be humble and listen to everybody.
Solicit advice wherever you can and enjoy the learning process. After talking to number of experts in any field you will become expert yourself. You will learn more than you realize. After failing in my first startup that tried to reform retirement savings, by chance I ran into and had a few hour discussions with a senior World Bank pension expert. I was in heaven! I knew my stuff and it was a validation of my research and passion.
You certainly learn a lot. However, if you want to put your learning to use, drop the love, share the learning, share the equity, test the market, be pragmatic, fail quickly if needed and move on until you succeed. The company you end up starting might be different from your initial vision, but chances are it will also be much better. That would be my advice to my younger self.
The fact that you spent 12hrs a day on a project does not make it a business or your job. It could just be a hobby or worse, love mixed up with business. Although you will still learn a lot.
Go do it, fail before you fall in love, and enjoy the process. Do not get discouraged. Just fail quickly and move on. Failing quickly may seem very counterintuitive. As a loving parent of your startup you want to give it time to grow-up and nurture it until it is sustainable. The problem is that most of us have limited resources and time, not to mention the pitfalls of misplaced love as described above. The fail quickly model is your friend as it avoids most of the love pitfalls and it allows you to iterate and learn from the process. The ideas may die, but the lessons you learn stay with you! That is a very positive thing and may be the difference that will make your startup a huge success!!!
Happily, I now get it and I’m looking for my next venture.
Best of luck with your startup!!!