Intro
We are living in the best time to be a Founder in history. IBM, founded in 1896, took 45 years to reach a billion 2020 dollars in revenue. Hewlett-Packard, founded in 1939, took 25 years. Microsoft, founded in 1975, took 13 years. Now the norm for fast-growing companies is 7 or 8 years. This trend will only accelerate (Paul Graham). With the breakup of some of the largest companies and increased access to technology, there has never been a better time to start a business as a young entrepreneur, and the decades to come will be filled with infinite opportunity. With that said, entrepreneurship will always be incredibly difficult.
Entrepreneurship is an ardent example of a process that must be learned by doing. The reason for this is that entrepreneurship is too broad and the experience is tailored to the entrepreneur (everyone has their own style). Entrepreneurship is a mindset. It is the task of accomplishing one’s goals with constrained resources. Experience will vary, each industry has its own sets of challenges, and each entrepreneur has their own tool kit to solve them.
Over the course of the last year forming a quantitative investment manager and a software-as-a-medical device startup, more lessons have been thrown at me than I’ve been able to field. The lessons carry over into other fields of entrepreneurship. Many may seem obvious, but for some reason they needed to be experienced and written down to be fully logged into memory. These lessons simply cannot be learned from reading (sorry). They must be learned first-hand and ingrained in the mind of a Founder so they can intuit around future problems. Written below are 7 of the many lessons that I’ve learned over the last year, many can be applied generally, but most apply to early-stage startups.
Co-Founders
Often, and especially if you are building a technical product, the most important ingredient to success is who you are building it with. A business partner has to, for the most part, be aligned with your grand vision of what the world should be, and how you are going to build that world. There needs to be a cultural fit and you must get along as if you would be friends outside of work. You are essentially married and may actually spend more time together than would a married couple. With that said, there must be strong trust. You have to be able to say to your Co-Founder, “I fucked up,” be able to go weeks across the country and know that both sides are not letting the other down, and that the other can do their role infinitely better than you would be able. The team building the product is the bridge to its actualization. Any cracks in the team’s foundation will lurk systemically for years to come. There will always be cracks, but they should be addressed at the minimum.
This sounds easy, and many may be able to point to people in their network that would make great Co-Founders, but it’s not. The early stages of a startup are unlike working for any company, which I’ll touch on more later. Simply put, navigating a startup to product-market fit is like sailing a ship through a storm, where you need to draw up the map as you go or jumping off a cliff and assembling the airplane mid-fall. Pre-product market fit can be exciting to some and heavily depressing to others. It requires incredibly hard work with no certain outcome. A Co-Founder needs a unique combination of incredulous confidence alongside disarming humility to hold on to snippets of customer validation and technical breakthroughs while pivoting around dead ends.
Arguably, the most important character trait found in a Co-Founder is the hardest to pin down. Often, people just have “it.” You may be able to see a sparkle in their eye during an interview. I personally think it comes down to their “why.” Why do you do what you do? Many float through life doing what they think they should be doing and it’s hard for anyone to escape this aspect of the human condition, but some have a rock-solid foundation of who they are, what they believe, and what they want to spend their short time on Earth working on. Those with a glint in their eye know why they’re in the room at that very moment and they are beyond excited to tell you. For those familiar with the Big-5 personality test, these are those categorized by strong openness to experience. These are the people that are excited by an empty white board, because they want to fill it. These are the people that build in their free time, because they enjoy it. These are the people you need to snag up as fast as you can find them, because they are desperately rare. AirBNB famously waited for 6 months to onboard its first Co-Founder, it is logarithmically important to find the best people early on as they will be the face of your business as you grow.
In scaling, it is also important to be as lean as possible and delegate responsibility downwards as much as possible. Price law states that the square root of the number of employees do 50% of the work. As the company converts from an exploration map to a well-oiled machine, this trend intensifies and there will be increased dilution in the quality of employees. “Processes need to be streamlined so that idiots can run them, because one day they will.” ~ Warren Buffet
(Cult)ure & Values
One year ago, I thought culture was a buzzword, and that values were a way for large corporations to tout their moral superiority. But this is not the case. I’ll start this section by saying the most surprising thing about starting these organizations was the fact that people kept looking to me for what to do. I’m an idiot, what do I know? You start seeing that what you say in meetings rubs off on people and hear them recite them in conversations with another person. It’s still really odd to me, but it does make sense. People join because they are often excited about what you are building. They don’t know the full story and look to the builder for guidance. Over time, this process becomes more natural and a corporate culture begins to develop.
According to Peter Thiel, early to mid-stage startups need to be cult-like, and I am beginning to agree. Startups make money because they are doing something that is non-obvious and creative. For instance, we are developing non-invasive potassium monitoring using ECG/ML. There’s only a handful of people interested in this technology/application in the world, but we are obsessed with it, and we need to be to succeed. In our sense, our cult is a group of people holding strong values and visions of dialysis care that most don’t know or care about. Maintaining that cohesion and focus within a group is vital. Concentrating that focus in one space prevents leakage when members wander into the dilutive atmosphere that is daily life, which has too many distracting moving parts and a disorderly focus on the “daily thing.” It’s a really odd comparison that is drawn here, but it is surprisingly accurate.
A corporate culture is really only a written or unwritten set of rules that tells an employee what to do in any scenario–similar to U.S. governing laws, The Bible, etc. More on this in last week's essay, A NEW RELIGION. Diversity of thought is important, but it is more important that everyone in an organization is on the same page. It is crucial that an organization maintains its own cohesive voice. Else, it is just a hodge podge of people doing random things to advance their perception of the corporate agenda. However, if everyone knows exactly what to do in any given scenario, things get done more efficiently and the right things get done. This becomes difficult as an organization grows. At which point, the CEO is texting the COO, who is talking to the VP of Sales, who is emailing employees… And so begins a giant game of telephone where messages become distorted and the workflows get off track. Corporate bylaws and values exist so that the goals are clear even at the lowest rungs of a massive organization. Larry Page and Sergey Brin are famous for implementing a simple “don’t be evil” at Google. With the amount of side projects coming out of Google X, it’s really amazing that nothing bad ever comes up in the news. The same goes for Amazon, where it is known that everything an employee does should be to (1) lower shipping costs and (2) make faster shipping times, things that a customer will always want. It is a simple rule of thumb for all employees to verify before doing anything, and it has worked exceptionally well.
Never Repeat Mistakes
This one is really obvious, but it shouldn’t be left unsaid. “Never make the same mistake twice” ~ Gustavo Fring. The journey to building anything is rocky and things will hit you in the face. You will always be hit in the face, but paying close attention to “why” you were hit in the face can help you dodge future problems. One reason the best executives get paid the most money is because they make the best decisions using pattern recognition. Their experience is their asset. They are able to navigate new problems based on crystallized wisdom built over decades. As I mentioned in the beginning, these are often things you have to learn by experience. While complex, the human mind is just an inter tangled net of neurons, which is conditioned to build associations with causes and events. The mistakes that a Founder can make are often so painful, that they are lodged in your neural network and you will have a tough time not remembering them.
Assuming the reader is young, you have a long road ahead of you. These failures are your assets. As you continue to make mistakes, you are compounding intellectual capital that will be highly valuable throughout your career. This is the reason for my writing this. It helps me think through my experiences and log them for future reference.
Managing
After one year of managing, I am convinced it is the most difficult skill in business. Some may have a proclivity to learn, but no one is born a good manager. In fact, I’m reluctant to begin this section, because it deserves 100 pages. Maybe it is true that a degree in management or an MBA would prepare someone to organize others, but I highly fucking doubt it.
At a high level, managers are organizing others to accomplish goals. This is important, because people vary in every conceivable way: in incentives, skills, perception, experience, goals, priorities, expectations, the list goes on. Personally, my experience has been in managing highly involved students, with many obligations, who are still figuring these facets out, all the while usually in an unpaid capacity as Co-Founders.
Managing can be transactional. You need something done, someone else needs money, so you pay them to do it. In this sense, you ensure that said thing will be completed, but it will not be done well. Managing can be through inspiration, where you guide someone to complete something that they are intrinsically motivated to accomplish. In this sense, you can’t ensure that said thing will be completed, but it will be done to the best of the person’s ability. A salary essentially purchases employees’ time and focus, but it is up to hiring and inspiration to ensure that person is intrinsically motivated to put their best work forward.
The first part of being a good manager is managing good people. Managers only have so much bandwidth in startups, because they themselves are figuring things out. It is up to the manager to recruit the best people, as described in the first section. These are people that you can trust to do the job without asking, who then proceed to go above and beyond. Essentially, the best way to manage is to not have to manage at all so you can focus on scaling.
Only then is it on you to keep the ball rolling. These people are working for you because they believe in what you believe. They have vested interest in the success of your venture because it is also their venture. They chose to allocate their constrained time and talent pursuing a vision alongside you. In some way, they are tying a portion of their life’s purpose to you. They know that this time and effort is valuable and they want to work for a winning team. So in order to inspire those people, you must be a winner–there’s no way around it. And you must set a precedent to work harder than anyone in the entire corporation. The buck starts and stops with the manager. If it’s obvious you are slacking off, the team will question why. Does he not believe in the vision he’s selling us? As soon as questions begin, they linger. Keeping the ball rolling is the most important, because as soon as it slows, it’s hard to speed back up. But momentum can be a strong force if used correctly.
You must take responsibility for failures and give out recognition to others for wins. You have to sacrifice yourself for the sake of the startup’s momentum. Facebook is known for having a small team dedicated to accumulating small wins in its nascency. They said it was their greatest innovation. Those wins motivated employees, because they felt that they were a part of a winning team. Again, this is very cultish, but that’s just how startups are.
Managing is not going to be the same for any two people. If you try to be Steve Jobs, you will fail, because (guess what) you aren’t Steve Jobs. A mentor of mine admits he’s somewhat militaristic in his leadership style. He recognizes areas of empathy he needs to improve, but it works for him.
Lastly, if you as a manager can inspire people to work more than a 40-hour week, that is powerful. The human brain only has so much RAM. Every day, our RAM/attention is pulled in so many different directions. We are distracted by our phones, we want to watch the game, and we have lives outside of work. It’s great that we do, but when our concentration is pulled, our work product suffers. The reality is hard problems require intensive focus and attention. There is a quadratic relationship between focus and speed/work product. In this sense, a 40-hour week is not 2x more productive than a 20-hour week. It’s more. If someone is truly absorbed in a problem to the extent that they own it, they will make remarkable innovations to solve it.
Product-Market Fit
Really, when you are building a startup, all you are trying to do is find product-market fit and then scale. Build something that people want and then sell it to them. It’s really that simple, but, and we have fallen trap to this as well, it is so easy to get distracted. The #1 reason that startups fail is that they build something no one wants. You may have a group of people telling you that they really like a feature of your software platform, then you tailor it to them, only to find yourself with an unsustainable business 2 years down the line. It may take years just to find product-market fit, but once you do, it’s clearer how to execute on that vision. Another reason people don’t focus on this is that it’s boring and completely unsexy. All you are doing is asking your customers what they want. Then you build a product that is better or cheaper. Ideally, it’s better to have 1,000 people that absolutely love your product than 10,000 that feel meh about it. This boring shuffle to find PMF is the most important and once you know, you know.
If you are in healthcare like us, however, you will be met with a barrage of obstacles, gatekeepers, regulators, and an array of incentives that must be met to go to market. I won’t go into the complexity of this, but my suggestion is honestly to just stay away from healthcare.
The last thing I’ve noticed is the best companies are product driven companies. This is just what Y Combinator will tell you, but that is because it is incredibly important. Focus on making the best product in the world and the rest will follow.
“The Shuffle”
Easily, the most frustrating part about building a startup is the shuffle. Really, what a startup does in essence, is create more with less. That is the formula to a successful startup. You have to get something without having anything… That is the recurring conundrum; it is a “chicken and the egg” problem. 10 investors agree to invest, but they may want validation from a lead investor first. The person you need to be successful will work with you only if you are already successful. You can’t afford the regulator pathway until you sell your product, but you can’t sell your product until you receive clearance. This is your every day as a Founder.
These can also be thought of as the various gatekeepers of life. In order to please the gatekeepers, they will send you on side quests so that they can let you through. Often, they really do want to let you through, it’s just that the framework of society won’t allow it. Although, sometimes they are actually just assholes, and that is much worse.
The only way around the gatekeepers is through marginal progress to a point in which they cut you some slack. I like to think about this as a marginal cost alongside a step function. You need to inch towards progress until that gatekeeper lets you in. At which point, you need to immediately work on getting through the next gate. Appeasing the gatekeeper comes down to sales. I’m not particularly good at this part, because I’m not one to talk up my projects, but it is something you must do. That’s why contemporary startups are just putting lipstick on a pig, raising for $100 million, then burning cash until you find a viable business model at 1/10th of projections.
What it Takes
The truth is that being a Founder/CEO is actually pretty shitty. It seems like no one ever talks about that. Nobody discusses how difficult it is to be absorbed by a certain idea you have to sell for potentially 5+ years (if successful) with no breaks and if you let off the gas, you fail. No one can take that responsibility from you because you are navigating new land. There are no other people out there that know your market and business like you. Founder depression has been coined and is common in the Valley. As the leader, it is your job to put out all fires, be on call all the time, work every day to set a precedent for your team, be exceptional, show no weaknesses, and ultimately win. As a founder, you really don’t have any time to explore personal interests, because you have so much responsibility. You never run out of things on your plate, because you don’t have just a plate, you run the entire kitchen. You are responsible for things that are completely out of your control. If someone 2 steps removed from you in the organization isn’t performing, you are responsible for sorting that out. If the OEM sets a new price that is unsustainable for growth, you are responsible for navigating a replacement. Everything under your corporate umbrella that happens (even if under someone else’s role) is your responsibility, and you go down with the ship if milestones aren’t met.
I truly have not seen a successful Founder that has not worked impossibly hard–to the point that it is honestly pretty unhealthy. If you want to beat the next guy, you simply need to work 2x as hard, and that may mean 100-hour weeks.
The problem is that before you embark into entrepreneurship, you need to be 100% certain that this is something you want to dedicate a significant portion of your life to. I write this and still don’t know the answer to that. If money is your incentive, you won’t last long. It has to be about aligning your purpose with creating the change you want to see in the world. If you are passionate about headphones, it may make sense to build a headphone company. If you despise mosquitos, perhaps you should begin manufacturing DEET.
But the point is you have to have something specific that you are passionate about. Society rewards specificity. If you don’t have that thing yet, maybe you aren’t ready. If your passion is aligned with the business you want to start, you will probably do really well. Founders that build products they themselves would use are more successful on average. In some sense, it is up to the founder to find purpose-market fit before specializing in that space, becoming an expert, and ultimately finding product-market fit. If this is something you are truly passionate about, it won’t feel like working and spending 5+ years on it won’t be a challenge, it will be an honor.
Thanks to Tracy Towns, Sam Schapiro, Fred Shoaff, and Alex Veronica for reading drafts of this essay. And to Joseph Jazwinski for always being an easy win in Chess.
Many nuggets of wisdom sprinkled throughout and easily digestible. Great content Jonathan.