The Importance of Realism in Startups

Posted on Aug 10, 2013 | 72 comments


I’ve done a lot of video interviews. This is one of my favorite if not my favorite outright.

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It’s only 12 minutes long and if you’re a first-time entrepreneur (or second time, frankly) I encourage you to watch it if for nothing else than to get a sense that your struggles are universal.

TechCrunch interviewed me and asked me to talk about failure. So I spoke for 12 minutes about my own failures. I made many classic first-time mistakes which makes it easier for me to spot when others make similar bad choices.

It serves both as my warning signal of which teams to avoid funding, especially if I perceive they will make critical mistakes often led by hubris or naïveté. An obvious example is if they talk about M&A deals, teams they could just “bolt on” or “doing a rollup in their industry.”

It’s why I will never fund Conference Ho’s. I know that this is driven from an unhealthy ego, self-centrism and lack of regard for running options of one’s startup.

Vomit.

My errors also serve as my source for coaching others teams for more benign mistakes like over-building functionality, over-complicating the product or hiring too senior of people.

I think failure is critical for many reasons. Mostly because it makes us better leaders.

As I’ve written before, “Good Judgment Comes from Experience, But Experience Comes from Bad Judgment.”

We learn from mistakes. We learn from losses.

In part I felt it was important to let people know that we all have failure and make mistakes.

As I’ve said before, all startups need to realize that every other company still has to see itself naked in the mirror in the morning. Stop reading their press releases or hearing their founder talk about he is crushing it. We all know that people who truly are crushing it rarely talk about it.

Once you realize that we’re all the same, all dealing with the same pressures, fears and struggles – you’ll learn to keep more focused on what you’re doing and not whatever everybody else is doing.

In my “failure interview” with TechCrunch I talked about the biggest stress that really comes from startups – dealing with all the other people with whom you work. Startups are filled with enormously talented people – often product people & engineers. As an industry we’re hardly used to talking openly about feelings or resolving conflicts.

It’s why I believe startup coaches are so important and I wish I knew more great ones. If you have great experiences please leave names in the comments section.

The Success Bias

In the end it’s easy to look back triumphantly at our startup experiences and define every move as heroic.

We of course remember the positive outcomes, the rewards, the press celebrations at key moments or at the finish line. We of course get all of the accolades if at the tape there was a financial pay day.

And with so many acquihires these days you never really know who was financially successful and who was safely landing a plane with no engines.

It’s certainly nice to look at your past accomplishments in your bio.

Yet these only tell the stories from one side of the startup ledger. They are whitewashed falsehoods that mask the struggles. They are only one aspect of the startup experience.

Even along the journey and nowhere near the destination I see many startups with their chests pumped out touting their latest deals, showing off their swish offices funded by millions of venture funding (and not necessarily yet the commensurate business success to afford said offices or perks).

I understand the temptation. In a world with too much tech hype many teams feel the need to constantly spin.

I prefer the opposite.

I prefer realism in startups. It’s part of my stump speech to first-time founders or university students.

Avoid the stupid mistake I made (and talk about in the video):

  • raising too much money too quickly
  • building too many features (a mile wide & an inch deep)
  • getting too much press before we were ready
  • focusing on M&A to fix our problems
  • believing our own hype

Most of the days at a startup are a grind. While you’re in the moment it feels like there are as many failures as their are successes.

Even success feels hollow. I had a friend who was on the front page of the business section of one of the top newspapers in the country while his company was 30 days from running out of cash. And in all seriousness the article prompted his relative to hit him up for money.

Every first-time entrepreneur who has raised millions in VC will know the surrealism of people calling you a millionaire while you are figuring out whether you can really afford to pay for a vacation since your credit card is already a little bit bruised.

We put on our brave faces and turn up everyday hoping that in the end we won’t feel like frauds. In fact, I believe that one of the largest motivators for startups to avoid the ultimate failure is to avoid the humiliation of not having every positive press mention seem like you were a phony.

It’s not that you don’t believe in your ultimate outcome – you have to believe in order to be insane enough to continue the journey against all odds – it’s just that there is nagging self doubt.

There are of course also external factors you can’t control. You think investors will continue to finance you – they promised they would – but you never really know. Until you know.

In the end you don’t always get the answer you had hoped for.

Youth vs. Wisdom

In your youth you have the bravado to face uncertainty with the blind optimism that success is inevitable. In short, you don’t know what you don’t know. I keep coaching an investor friend of mine that this can be a good thing at times and that he shouldn’t be too quickly to discount lack of experience from a team with serious talent and full of ambition.

This “naive optimism” is why I believe younger entrepreneurs are more likely to produce insanely big outcomes.

Yet youth often brings a triumphalism that blindsides entrepreneurs into missing the macro picture.

It is why younger entrepreneurs are more likely to drink their own Kool-Aid, which of course is dangerous.In bull markets many credit themselves with brilliance and industry stewardship when perhaps they are merely riding an ephemeral trend fueled by speculative capital.

Age brings wisdom. Timidity, too. And sometimes cynicism. But age brings perspective. If older entrepreneurs are more cautious it’s because life’s experiences have taught them to be so.

Older entrepreneurs tend to spend cash more wisely, for example. They feel less in a rush to keep up with the Jones’s since they’ve seen a few boom-and-bust cycles and they know it’s a marathon.

I find older entrepreneurs more willing to have pragmatic debates about competition as well. They realize that there is often more to be gained by attacking the existing market structure than each other.

Older entrepreneurs tend to avoid lawsuits where possible. There is less ego. Younger people still like to fight.

And for the most part they shy away from premature press because they know the consequences of getting over one’s skis.

The Case for Realism

I try my best to blog from a realistic perspective because partly because I believe it’s important for people on the journey to have a realistic perspective and not feel ashamed at their progress or performance.

It’s why I wrote one of my most read posts – Entrepreneurshit.

Because I know many people at big & successful companies or at fast-growing startups I know that even they have struggles, doubt, insecurities, fear of failure.

If you knew that it might help you realize that your failures are not so special.

There is always a tomorrow – even after bankruptcy. A second act. A new career if not a humbled one.

That’s why I loved the TechCrunch interview.

It gave me a chance to make sure that wherever you are in your career path you would know that we’ve all been there.

Even if our bio’s don’t mention it.

Failure is ok. It’s not the same as losing or being a loser. It’s a set back.

And it’s how you handle your failures that define you more than anything else.

****

p.s. If any of you were at the Foundry Group rock party in San Francisco where Ryan McIntyre and Seth Levine rocked with many other VCs (David Cremin, David Pakman, who am I forgetting?) then you’ll know how heroic this TechCrunch interview really was. It came with one hell of a hangover that I blame on unnamed LPs (ahem) and on my inability to say no to a challenge (and whiskey). Which come to think of it means I’ve really learned nothing at all in my old age. It came after only a few hours of sleep in which I had a meeting in the morning with an LP who will be smiling if he reads this because he knows that I had to stand for my whole meeting with him in order to get through the meeting.

  • Aigerim

    Great post Mark.

    I agree that every first time entrepreneur should surround herself with experienced advisors (and investors), who have been around the block. Shameless plug to our long-term advisors here Julie Hanna, Adam Lilling and Ken Hayes for helping us navigate the waters over the past 2 years.

    By the way, I think different advisors could help at different stages/situations. Some advisors are great at product feedback, others at negotiations (thanks Mark ;), yet others at understanding your industry landscape.

  • http://www.justanentrepreneur.com Philip Sugar

    Maybe, I’m missing the humor or sarcasm. Color pissed away $16mm on exactly NOTHING. They are the absolute posterchild for my comment.

  • Phin Mpofu

    I have read many an autobiography, blog post and LinkedIn influence article from successful and not so successful entrepreneurs. As the founder of a start-up myself I always find myself gravitating to the stories of how seasoned entrepreneurs faced a challenge and overcame it, or didn’t overcame and dealt with the failure. We (founders of start-ups) all too often need those pearls of wisdom. Don’t sugar coat it, tell it as it is. Entrepreneurship is not for everyone. The reality though is the tough challenges every entrepreneur faces is often what drives us and I personally believe, is what sets us apart from someone looking for the ‘safety net’ of a corporate job (not that there is anything wrong with that).

    Great post and looking forward to reading through the rest of your blog as I continue on my entrepreneurship journey.

  • Petrushka

    Mark, understandably you look at things from the experienced end. My experience with raising money has been that if you are smart and young, have a good partner and a great technical team people literally want to throw money at you even if you promise something that is technologically impossible. I ended up turning down the money to keep my reputation and took a startup job where I’m surrounded with experience and can learn a lot instead, but I wonder in which situation I could have gained more. To reiterate my question, what do you feel is the lowest risk highest payoff career path for someone out of college today? Is entrepreneurship ultimately overhiped due to the availability of cheap money? If I am playing a long-term game here, is turning down a job at google smart to start your own company?

  • http://bothsidesofthetable.com msuster

    really enjoyed seeing you. hope to see you again in NYC soon.

  • http://reecepacheco.com/ reece

    sounds good. keep me posted on travel plans if you can

  • Diana Tsai

    Best startup coach, link below. It’s not his occupation, it’s just his life. Here are the reasons why I believe he is the best startup coach:: He adamantly gave me the hard truth. He didn’t back down from painful criticisms. He shattered my foundations, forced me to rebuild, balance optimism with realism, look myself in the mirror and question the vulnerabilities in my business and my SELF. Startup coaches if anything should be similar to champion boxer coaches– always pushing for better performance, tearing down egos to force growth, never giving praise. Everyone else cheers but has no idea what actually goes on in the training room, the day-to-day pain. It’s the coach that gives the most meaningful and most authentic congratulations when the game is won.
    cn.linkedin.com/in/kevinyuarts

  • Tim Murphy

    Very interesting, Mark. I spent a lot of years as a fighter pilot before moving to business and have always been amazed at the lack of hard-headed “debrief” of performance in the business world that was part of my former culture. I’ve worked in two start-ups now and have seen nearly every error you reference. Your straight-forward honesty will help a ton for those willing to listen.

  • LaVonne Reimer

    I have faced this dilemma and certainly read many stories of disconnects around business planning. Your comment just struck me in a new way. “Common language between investors and entrepreneurs.” Well played!

  • LaVonne Reimer

    The video was worthwhile and the post adds really useful details. I’m really glad I read all the way down to the end though. The P.S. was epic!

  • beve83

    I watched it when they posted it. It was really inspirational! As an entrepreneur who has made a lot of mistakes, it was very soothing to know that people we look up to also have made them too, yet still succeeded.

  • Lynn Rasmussen

    Great article and killer talk, Mark. I agree about coaching. With the right coach, everyone is coachable. Coaching is an unfortunate term, but I haven’t come up with a better one. It’s more like creatively co-learning. And more than just for group work. Taking an hour a week with a pro to work on your work instead of just in it is powerful stuff.

  • Stuart Crane

    Mark, loved this post. I can relate to many of your points. After being the last employee of a mismanaged consumer database company in the late ’80’s, in ’93 my partner and I started and bootstrapped a healthcare software company, grew it to 75 full-time employees and $15M/yr in revenues (80% recurring), 31% EBITDA, and recently sold it to a large Healthcare IT company owned by private equity firm Thoma Bravo. We had NO outside investors, no debt, and millions in cash when we sold. The transaction was all cash, debt-free/cash-free, no earnouts. Now I have a startup – http://www.tvtalk.com – and things are quite different. Oh, and I’m in a Forum exactly like you described in the video. Having fun… would love to talk to you sometime.

  • http://www.startupmanagement.org/ William Mougayar

    I finally got around watching that video! Yes, great lessons and some classical mistakes.

    But as a startup in very early stages (I’m talking under 10 people), I would argue that you need more Optimism than Realism. Then, as you mature gradually, realism should definitely take over.

  • Alexey Semeney

    Mark, great video, thank you for the lessons.
    Btw, you are blogger for a longtime and I would like to talk to you from this perspective. What’s the best way to do that?

  • http://www.esayas.com/ Esayas Gebremedhin

    You see Mark, words can be an obstacle sometimes. If reality can be replaced by possibility, than it varies a lot what you consider to be possible. Every do-or-die entrepreneur knows that the culture is tough and about making the impossible possible. In contrast, imagine what it takes to buy an ice-cream…. My request in this comment is: “How does an the art of entrepreneurship looks like if it was as easy as buying an ice-cream?” Reading a post about this possibility would be great.

  • http://www.esayas.com/ Esayas Gebremedhin

    go to tumblr.com and write a headline. start writing. writing blogs is about emptying your head from your thoughts. here is mine: esayas.com

  • Jack Lanahan

    Thanks for this. Read on a Quora post that you’re moving closer to the healthcare space. If this is the case, is there a way to connect with you?
    My company advanced in the NVC at Booth this year but didn’t win. We have a really exciting solution to a big problem but having challenge connecting with right hospital decision makers.

  • http://influitive.com/ Abdallah Al-Hakim

    Finally got a chance to watch this interview and it was definitely worth it. The bit about the strategic money is very enlightening and consistent with what other VCs such as Fred Wilson had alluded to in the past. Thanks for being open and frank in your interview!

  • Brian Sowards

    Jeff Finkle has been one of the best mentors/coaches we’ve encountered in Manhattan. Level headed, he provides just the right combination of resistance and openness to help entrepreneurs balance their passion against investors’ need for clarity. He heads the only (and largest) angel fund in NYC – Arc Angel Fund. When it comes to running a startup, great advice only goes so far. Jeff has done a lot to help us implement tools and tactics to follow through on our plans. You can find him at: http://www.linkedin.com/pub/jeffrey-finkle/0/a3/28

  • http://vizualize.me/ExtremeNZ C.P. Spencer

    Best quote “every other company still has to see itself naked in the mirror in the morning”…the app is the brand.

  • KevinHolmesFN

    Awesome postscript Mark. :)

    Per your YPO/EO comment – I run http://www.foundersnetwork.com, a problem-solving and peer mentorship group of 450+ “founders helping founders” on their tech startups. One of our members shared this post with our group over the weekend and it resonated. I realize a blog comment is not the normal channel for this but we’d love to invite you to give a talk. Please email me kevin (at) foundersnetwork.com if interested.

    Re coaches, I recommend Nathan Beckord at Venture Archetypes. Down-to-earth, well connected guy in SF: http://www.venturearchetypes.com/ He’s working on http://www.foundersuite.com/ but I believe still works with a few clients here and there.

    Re youth vs. wisdom, enjoy http://www.youtube.com/watch?v=UKUZ42T9diU