10 things I learned as an entrepreneur

I presented at KASE/KIN Entrepreneur Academy and basically my subject was 10 things I learned as an entrepreneur creating and running start up companies. Here is the list.

Lesson #1
Find partners who shares your passion for your idea and who complements your skills

This is very important before you even start a company. If you have to choose between someone who is an “expert” in the area versus someone who is passionate about the product, I would lean towards the passionate person. Communication is essential, even if your partners are on the other side of the world. Make sure that everyone speaks the same thing to the outside world, if you get different message coming out from the company, it will confuse everyone, including the venture community.

Lesson #2
Don’t build a better product, build a product that will solve a problem and protect your idea

This is the biggest mistake I see in many startups, specially ones with an engineer as the CEO. It can be a product or a service, it doesn’t matter. It has to be something that solves an existing problem. Bigger, faster and cheaper just doesn’t cut it, specially as a none branded start up company going against an established competitor. Involve your marketing early, not necessarily PR or Sales, and understand your market before jumping in. Protect your ideas at all times. While it’s never a guarantee, use NDAs whenever possible (often time people who is legally bound, like lawyers and financial people and those with reputations to hold, like VCs, will not sign an NDA) and apply for a patent on unique ideas. Provisional patent can be files by the entrepreneurs for few hundred dollars. It will give you one year of protection while you survey the market.

Lesson #3
If you can’t find someone who is dying to use your product, then forget about it

A kind of corollary to the lesson #2. It doesn’t matter how great the product or service may be, if you can’t find someone who is dying to use your product, chances are it won’t be successful. Imagine going to a company, who’s livelihood is depending on your product and saying “we are better than Cisco or IBM”. How much trust do you think they have on you? You would have to be give them a significant incentive to switch from a safety of currently working solution to your unproven technology or product. Initial customers do not have to be HPs or Intels, they have to be someone who has a lot to gain or lose by trusting your product. Your product must provide so much incentive, they want to take a chance on you and willing to pay for it upfront.

Lesson #4
Don’t follow design-produce-sell approach, use sell-design-produce approach

Most of the start up companies will design the product, make the product then try to sell it. This approach, in my opinion, does not work.

I worked for a disk drive company called Conner Peripherals in the past and their approach was sell-design-produce.  They had the expertise in disk drive area but they haven’t produced a single product yet, other than concept and prototype. They approached Compaq, one of largest computer company at the time, and sold them on an idea of the next generation disk drives. They got a commitment to buy for a large volume of disk drive from Compaq and in return, Compaq would get 6 months of exclusivity on the next generation disk drives. This provided enough incentive to Compaq because they can enjoy the technology leadership in storage for at least 6 months. This benefited both companies.

Conner Peripherals became the fasted company to reach the Fortune 500 at that time. The lesson learned is that finding the first customer before any design proves to be a much better approach, specially for a start up company.

Lesson #5
Investors are looking for a team who can execute, not products, ideas, market, etc.

This is something I learned from dealing with the venture community. The most important thing the investors are looking for is the team and the viability of the concept. They are looking for a team who can execute the plan, specially in the area where it’s a brand new technology. Remember, the VCs don’t always know everything. Often they bring in experts in the area to advice them but there are many areas it’s an unknown technology. They have to assess the risk and if they believe in the team, they will more likely to invest because the right team will most likely bring a successful exit. 

Another point to note is that majority of the company will change their direction, product, service, business model, etc. before even launching the company. Example is one of my start ups, Scentric. We started with an idea but completely changed it within a couple of months. After getting $4 million from a VC, we changed the product again to something new because the CTO didn’t think he can execute the plan for only $4 million.

This happens all the time so the investors want a team who can execute, no matter that the plan may be.

Lesson #6
Cash is the king, conserve as much as you can, yet be creative and move fast

Again, another important lesson for a start up company. Only exception to the rule to me is time to market. Other than that, the cash should be conserved as much as possible. There are ways to achieve goals without spending a lot of money. An effective PR costs a lot less than advertisements but just as effective or more. A different type of sales channel can be used. A viral marketing is more cost efficient than full out launch campaign, although it may take a bit longer to get there. Using an open source code can cut a lot of development time and cost. You can hire engineers in India or China for $10 -$15 per hour, although you have other issues you may have to deal with. There are many creative ways to do things to conserve cash.

Lesson #7
Always be ready for opportunity, rarely is the original idea the best idea

As I have mentioned in lesson #5, many companies change their direction before launching the company. So, it’s good to be flexible in your plans to adapt to changes that may be coming. Another personal example I can share is Infrant Technologies. I was the marketing person in the company of 13 engineers. Initially, the CEO of the company wanted to go in to an enterprise ASIC market and has been designing the ASIC for two years before I started working with them.

After I did some market research, I found that the enterprise ASIC model just would not work. I suggested the consumer systems model because that would work much better. Luckily, he saw the opportunity and changed the model. This year, they were sold to NetGear.

There are many other examples. Myspace was originally geared towards bands and musicians. Facebook was only available to students. Yelp.com was not a restaurant guide, initially. Adult Friend Finder was a dating site for everyone before they started to cater adults only. All these companies monitored their customer base and shifted from their original ideas and made a successful company based on the change.

Lesson #8
Networking is crucial in early stages, be out there and sell the company and get feedback

To me, the most important thing a CEO can do is to go out and meet people. Networking is crucial to testing out and honing the company pitch. If you can’t show people what you do in an elevator pitch, you need to keep improving it. Get feedback. Most of the people in the networking situation will give you an honest feedback on your pitch or your concept, unless they have an ulterior motive.

Couple of tips. First, don’t pitch your ideas to venture community with a funding in mind initially. Just ask them to be a sounding board for your idea. Next, take advantage of events around. There are many events around silicon valley where you can do your pitch to VC and/or Angel panels without actually pitching for funds. These forums are perfect place to practice your pitch and your concept before doing actual funding pitch.

Lesson #9
Believe in yourself, your idea and your partners, if you lose faith, it’s the end

If you don’t believe in your product, no one else will. People will sense your faith in your concept or product. Be passionate about your concept all the time.  Don’t give up on your idea initially if you encounter some difficulties. Ask for help and keep improving on the concept until it gets better. Keep the faith and keep it going.

However, know when it’s time to quit. Make sure you have a goal in mind before you even start the company. Give yourself a time frame, let’s say a year, to try it out. If you can’t get traction in a year, it’s time to reevaluate.

Lesson #10
People are the most important asset, treat them as such but know when to let go

The final lesson is recognition of people as the most important asset of the company. Remember, most of the people who start with you are working for free, with equity as the only incentive, until you get your funding. Recognize that and make sure you treat the people with respect and provide whatever you can to keep them going. Provide the leadership, passion and faith to them so they will follow until you can get the job done.

However, you need to recognize when things are not working out early and let those people go. This is one of the most difficult thing to do, specially in the start up environment. The effect of someone who doesn’t fit has much more effect to the bottom-line for a start up company then for an established company. You need to move fast or you may regret it.

These are the lessons I have learned and hopefully you will find them useful.