5-4-3-2-1 Countdown for Entrepreneurs (10/12/22)
5
Lines about how-to-succeed from TV’s “Billions”
The TV series “Billions” is a drama about cutthroat capitalism. The hedge fund owner and his henchmen often break the law as they pursue power, fame, and fortune, so a lot of dialogue is cynical and self-serving. But here are five pieces of savvy advice from the characters – insights that sound like what you might hear from motivational speakers:
“The greats never sacrifice the important for the urgent. They handle the immediate problem and still make sure to secure the future.”
- Bobby Axelrod
“Faith can be a beautiful thing, except when it’s misplaced.”
- Chuck Rhoades
“Nature didn’t select me. I selected myself by harnessing my nature.”
- Bobby Axelrod
“Find whatever greatness lies within you and nurture it. Eventually, it will be seen.”
- Mike Wagner
“When you do something to put yourself back in charge, remind yourself that you are not less but more powerful for what you’ve come through.”
- Bobby Axelrod
4
Criteria for defining a true “entrepreneur”
Entrepreneurship can be defined by four things: commerce, risk, scarcity, and vision.
Commerce. To be entrepreneurial means pursuing a commercial venture. It’s not a hobby or a pet project. And while the venture may be producing social good, it cannot be only a cause. If it’s activism, which is commendable, it must be combined with some sort of commercial nature if we are to call it entrepreneurship.
Risk. Entrepreneurs face material risk. And risk has two components: uncertainty and consequence. Is there something unknown? And is the impact of that unknown fairly material? I’ll illustrate that with an example: Imagine you are preparing to walk out the door in the morning on your way to work and you're deciding whether to grab an umbrella. Whether or not it rains, that's uncertainty. You might have a reasonable forecast, but you still don't know for sure. It is uncertain. Now imagine you're not walking out the door to go to work, but rather to attend your outdoor wedding. 300 people are waiting in line. Several anxious vendors. No tents, completely exposed, and thunder clouds are rolling in. That is consequence. The same level of uncertainty in different contexts has a material difference in how much risk exists.
Scarcity. Resources must be scarce for someone to be entrepreneurial. There's got to be some challenge to it. In a film script, you think about character traits like grit, tenacity, resourcefulness. These don't just show motivation for characters. They are essential because you need those qualities when things are scarce, to overcome adversity.
“Scarcity” can be relative. There is no set number of dollars nor number of people on your team that qualifies what’s "scarce." Imagine a scenario where you have a very small team working on a tightly defined problem that doesn't require massive infrastructure, hardware, things like that, and let's say they had $10 million at their disposal. That might sound like an enormous sum of money that would last them an incredibly long time. But imagine a second venture that also has $10 million, but its mission is to colonize Mars. In that second case, we have an incredible level of scarcity -- not so much in the first.
Now how does that apply to a real-life example, particularly when it comes to a large organization? Let's think about a spinoff coming out of Google. Someone there is trying to create the next Google Drive or Gmail-like product. And if they have the full power of Google behind them and all the resources -- engineers, capital, all the IP — I’d argue that trying to pursue the next big thing at Google is incredibly innovative, but it is not entrepreneurial. It might be intrapreneurial, but not entrepreneurial.
Vision. Jack Welch, the former chairman and CEO of General Electric, summed up the need for entrepreneurial vision when he said, “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.”
3
Parts of the startup equation: Product, Market, Money
The startup ecosystem is overflowing with promising tactics. We've got gurus, frameworks, books, and courses galore. Some introduce solid ideas, but few, if any, bring together a truly cohesive plan of attack. In theory, they may make sense, but when it comes to applying the ideas in the real world, most just don't cut it. But one concept has a great deal of merit -- Product Market Fit, PMF. This is seen as a crucial, early milestone. Some even describe PMF as the objective of an early round of fundraising – that in your seed round of funding, the purpose of the money is to achieve this goal.
To better understand PMF, let's consider two definitions from key players in the space. The first is from VC Marc Andreessen. He describes achieving PMF as "being in a good market with a product that can satisfy that market". Another definition comes from Steve Blank, who many consider the father of the Lean Startup, alongside Eric Ries. Blank talks about PMF as the moment when you have matched a product's features with its customers.
These are both interesting, helpful definitions. However, they come up short because there's not much specificity. When Andreessen says, “good market”, what does good mean? And to whom? A VC’s definition of good might be very different for a solopreneur who's trying to get a venture off the ground without outside funding. And "satisfying the market"? What does that actually mean? Does it mean that you've solved the problem? Does it mean they paid you for it? What does it mean about the value of what they've extracted from it? And when you think about what Blank has to say — matching product features with customers — what does that mean? Does it serve all their needs? One of their needs? And what type of customer? In many ways, these definitions just open the door to additional questions.
While the concept of PMF is a good start, it comes up short. When I think about how to extend PMF into a more effective tool, I begin with this question: "Can your venture create value for a customer with economics that makes sense?"
Let’s break that question into three parts. The first is the notion of creating value. When I say “creating value” what I mean is that — again, remembering a startup is a commercial pursuit — people are paying, or they're giving up their own resources, for what you are offering. Your product or service causes them to give you something worthwhile — something that's valuable to them -- in return. Hopefully it's money, but in some cases, it might be their attention, their time, their referral, their endorsement. It's something that has value to them, and they're willing to give it up. The notion of creating value is really the essence of product. What is the thing? That can be a service as well, but let’s lump it into this thing we call product. Have we created value in what we're delivering?
The second part of my question is: "for a customer". It's a commercial venture so, of course it's for a customer, whether an individual or company. But this is more important: Who is the customer and how do we define them? Is it based on their desires, their needs, the value they see in the product? I contend it's all those things. So that customer isn't a random collection of people or companies. It's a defined group of individuals or companies for whom you have created a lot of value purposefully for them. Those two realities are the essence of PMF -- product plus the market, linking them together.
But I added a third reality, "Can your venture create value...for a customer... with economics that makes sense". This third part is about money. This is important because imagine you were able to achieve either of the prior definitions of PMF. Let's say you created value for a customer. But if one company can do it by creating $100 of value, and it costs $500 to get that value in a customer's hand, those economics aren't good. Alternatively, imagine someone who's selling a similar product with a $100 value, but they can do it for $20. That's a material difference. In one case, the economics make very good sense. In the other case, they clearly don't.
Now I don't want to be so simplistic as to assume the only way for economics to make sense is that you have substantial profits on every unit you sell. First of all, that doesn't happen — even when you achieve it — immediately. So, the notion of “economics that makes sense” could just mean that we have a savvy plan for how we're going to get to profitability in time: “Here's how the economics makes sense...and here's the path to get there.” They don't have to work today, but you're on the path to profitability.
Another way to have economics make sense may come in the form of companies where what they are producing only works out if they eventually get acquired. This could be true for companies that have a huge capital requirement, like infrastructure firms. It can also happen in life science, pharmaceuticals, and other sectors where there's a huge sum of capital required to bring something to life and it may need to be accepted within a company or acquired or some other means, but it doesn't necessarily translate directly to profitability.
So, I believe the product-market equation needs three parts -- P product, M market, M money. PMM. I think PMM should be the new PMF. It's not an extension of it; rather, it's a replacement of it. And the reason it's a replacement is because PMF doesn't include money -- it doesn't get us all the way there -- and yet PMF has been treated like a destination: "Oh, we are a scaling startup. That means we achieved PMF in the past, and now we're finished with that phase of our company and now we just need to grow." Those might be the famous last words of many startups that have failed because PMF is not a destination... or shouldn't be. PMM is the real journey. PMM is something you are perpetually trying to achieve. And once you achieve it, you have got to keep it...and keeping it is not simple. It is a concerted, focused effort.
PMM shows itself in almost every key decision within a startup. The leaders should be thinking: “How does this choice affect the product, the market and the money? Because those are the elements that drive the ability to make this company work. And if the decision we're trying to make results in the P, M, or second M failing, we probably shouldn't proceed.”
By contrast, that's not the way people think about PMF – Product-Market Fit. If you have a pivotal choice facing your startup, you don't often ask yourself — especially once you're at the stage of scaling — "How does this impact our PMF? Will this change our product-market fit?" What if the discussion has to do with fundraising? What if the decision has to do with hiring? What if the decision has to do with whether to consider an offer from someone for acquiring your venture? You could argue such questions really have nothing to do with PMF, but it has everything to do with the way in which you're going to deliver your product to a market because of the money. So, PMM is a replacement for PMF.
PMM is something that you need to try to achieve continuously. You start by making sure you have problem-solution fit. You have a problem worth solving. You have a need that must be met. And you are validating it constantly. You are understanding your audience and making that target audience narrow enough that you can say: "I'm clear about what it is that this unique set of individuals or organizations truly need, or truly want, or truly are suffering with as a problem or missing as an opportunity. And our product or service delivers that."
The ability to do that customizing and then repeat it — turn one narrow market into many, have one product or service expand into a collection, and be able to routinely produce PMM over and over and over — that's the recipe for scale.
That’s the pathway to profitability.
2
Questions that define the stages of a startup
I describe the earliest stages of a startup as the "starting" phase. During the starting phase, you're trying to answer the question, "Is there really a business here?"
The goal is to try to graduate to the next phase of a startup, which I’d describe as the "scaling" phase. In scaling, you're trying to answer the question, "How can I sustainably grow this business?"
1
Vision about the coming “metaverse”
First, a definition of “metaverse” from Wikipedia: “In futurism and science fiction, the metaverse is a hypothetical iteration of the Internet as a single, universal and immersive virtual world that is facilitated by the use of virtual reality (VR) and augmented reality (AR) headsets. In colloquial use, a metaverse is a network of 3D virtual worlds focused on social connection.”
Writing in Forbes, Tommaso Di Bartolo, a serial entrepreneur and author, made four “predictions for the Metaverse in 2030”:
“The next phase of the metaverse will be phygital.
“The metaverse will revamp the education system.
“The workforce will move to the metaverse.
“Digital properties will have a greater impact on GDP.”
He acknowledges that “the metaverse is a long-term game” but concludes with advice on how businesses can prepare for this new world of 3D virtual worlds.
Stay safe, stay happy, stay in touch!
Adam
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