2019 is the Year of Sustainable Entrepreneurship

I was looking through a list of around 40 companies that had gone through a certain startup accelerator’s program. Of the 40, I knew of two exits (one small, one large) and one viable continuing operation. 90% of the companies were either gone, or on life support.

Using VC math, one might argue the one big exit created enough benefit to justify the entire portfolio. Perhaps it created a few wealthy founders, who in turn might become angel investors and seed new portfolios.

But what happened to the 90% of founders that failed? I’m guessing they retreated to the corporate world, badly burned, and very few will ever take a second shot. And most of the portfolio companies seeded by the few successful founders will probably face the same fate, and on, and on.

How long before the pool dries up? At what point will prospective founders look down the barrel of a 90% chance of failure and say “no thanks”?

I think we’re getting close to that point. We’re already seeing a slump in seed funding, and some welcome backlash against #struggleporn, #hustleporn, and other rhetoric that keeps founders engaged in a losing game. I predict 2019 will be the year we question what fostering entrepreneurship means, and hopefully, move to a sustainable model.

Fostering Entrepreneurship: 2009–2018

For the past decade, we’ve encouraged founders to create “investable business models”, almost out of thin air. Investable business models have the potential to get huge, usually on the back of a big trend that will catch the eyes of VCs. We’ve focused on maximizing the odds of investment, not maximizing the odds of creating a successful entrepreneur. And those two objectives can absolutely be at odds, as I’ve explained in the past.

I’m not going to beat-up too much on the old model, because I think the results speak for themselves. We’ve designed for outliers, and that’s exactly what we’re getting.

Fostering Entrepreneurship: 2019 Forward

First and foremost, a model for sustainable entrepreneurship needs to create successes for entrepreneurs. I mean successes period — not exclusively huge successes. Nothing creates a thirst for more success than a taste of it.

A model for sustainable entrepreneurship abides by 3 rules:

Rule 1: Small is OK; your first venture may not be your biggest venture.

For most of us, and especially first-time founders, the range of good outcomes extends way below Zuckerberg dollars. Seeing something you’ve envisioned become real, making payroll, and putting enough in your bank account to keep your family happy…that’s a terrific platform on which to build skills. Maybe you get bored after a few years and decide to scale it up, sell it off, or wind it down and launch something more ambitious. If you’ve been able to forego early VC funding, the timeline is yours to control and the bar for a good outcome is within reach.

Somehow, we’ve decided that shooting for a modestly successful outcome is a concession. We’ve been telling first-time skiers to skip the bunny slopes and head straight to the top of the mountain. A few miraculously make it to the bottom, but most end up with broken legs. There is no shame in logging some practice runs before going big in any endeavor, including entrepreneurship.

Rule 2: Know your definition of success

Don’t let your accelerator program tell you that success is raising a seed round, then an A, then a B, then a C, then going public. There are many flavors of success, each faces different timelines, probabilities and capital requirements, and only you can decide which ones fit. It could be that your definition makes you “uninvestable.” In that case, the worst thing you can do is to take investment; you’ll find yourself long-term committed to someone else’s target.

Rule 3: Celebrate business victories more than fundraising victories

Everyone acknowledges that raising capital is a means to an end, not an end in itself. And most everyone, including VCs, agrees that fundraising is often incorrectly portrayed as a clear win instead of a mixed blessing.

This consensus is getting lost on its way to the press. Fundraises account for most of the startup news out there, and are always portrayed as clear victories. It’s probably too much to ask for more balanced reporting on fundraises; the ugly particulars are not usually made public, and would only serve to buzzkill a good headline.

More realistically, we can start shining a light on successes outside of fundraising. Since these stories may not be event-driven, it’s incumbent on us, the entrepreneurial community, to bring them to the press.

A lot of hype has been created around startups over the past decade. There is no shortage of interest in becoming an entrepreneur. In order to keep the interest from fizzling, we now need to help deliver real successes, which requires rethinking how we’ve defined success in the past.

A Startup CEO’s Job is to Master the Narrative

I grade myself a solid ‘B’ at sales. I can get the job done, but not nearly with the aplomb of many others I know.

Still, one of the biggest mistakes I ever made as a CEO was hiring an ‘A’ seller too early. In doing so, I extracted myself from talking with prospects, at a point when their feedback was key to forming the company narrative.

‘The Narrative’ doesn’t reside exclusively within the 10-slide macro disruption story you’re pitching investors. It starts at a much more basic, tactical level. It is the very core of why your product exists, who it’s helping, and why they should pay money for it. The only way to forge a good narrative with startup speed is to be directly in touch with customers.

Remember the Telephone Game?

The telephone game — where people in a line verbally pass a message, and by the end of the line the message is completely transformed. If you are expecting your sales and support team to feed you intelligence to form the narrative, you’re playing the telephone game.

Direct interactions with customers are full of subtle clues that get lost in translation. You can feel when a prospect gets excited about a feature, or when a pricing objection is a negotiation versus a statement on your value. When a customer asks for a feature, the dialog around the ask might point you to a potentially game-changing differentiator. These key strategic insights can be subtle.

It’s not that sales and support are going to miss the messages. In fact, if they are good at their jobs, they are probably just as good as you at listening and picking up subtleties. Where the messages get lost is in route to you. Language fails in its ability to relay subtext.

It Might be Painful for Introverts

Maybe you find talking to customers and prospects exhausting. Maybe you grade yourself a ‘C’ or even a ‘D’ at sales.

Give yourself permission to be exhausted, or to suck at selling. At the very early stages, whether or not you close the deal is not nearly as important as your mastery of the narrative. The more you stay in front of customers, the faster you’ll master the narrative. The faster you master the narrative, the sooner you’ll be able to extract yourself from the front lines.

You Can’t Skip this Step

First you master the narrative, then you scale. You might see a spark and be tempted to pour gas on it, or your investors might be pushing you to hit aggressive growth targets before the narrative is solid. Don’t do it. Premature scaling, i.e. using equity capital to numb the pain you should feel from a flimsy value proposition, is the number one error that startups make.

The number two error is hiding in the basement and not selling at all. You learn by selling. Don’t confuse waiting to scale with waiting to sell.

Getting the narrative right is a messy and sometimes painful process. But as CEO, it’s one of your most important jobs. To do it right, you need to stay in front of customers until you’ve mastered the narrative.