Finding Genius Read online

  CHAPTER 7

  EXECUTION: GENIUS AND THE INEVITABLE MARCH OF TECHNOLOGY

  “In the annals of ingenuity, new ideas are only part of the equation. Genius requires execution.”

  Walter Isaacson

  The startup stories shared by the founders featured in Disruptors portray a humbling reality of the execution risk involved with building a venture-scalable startup. Feelings of success and accomplishment are often fleeting, as new challenges threaten the survival of an early-stage business. In my current role as a venture capitalist, every day I meet with founders who reveal the firehose of challenges they face across market development, customer acquisition, team and culture building, legal battles, regulatory concerns, and other areas they must manage to keep their company afloat. Statistics show that most founders fail but the few who succeed are the ones able to manage the execution of an entrepreneurial vision, while embodying the definition of ‘genius’ I’ve been exploring. The intricacies of running a startup are nuanced and go far beyond the broad strokes of painting a masterful vision to attract financing. Attracting venture capital is only a small part of the battle.

  Quarterback wisdom from VCs and entrepreneurs on building a startup is valid only to a point, as each entrepreneurial endeavor is a unique experiment in itself, with its own challenges and lack of a repeatable structure. The path is fraught with failure and an entrepreneur’s ability to innovate around challenges, or exhibit traits of ‘genius’ through execution, is the differentiating factor to success. When it comes to entrepreneurship, execution separates the average founders with great ideas from the geniuses who are able to build enterprises with true, lasting value.

  Investors such as Keith Rabois, Marc Andreessen, Andy Weissman, Ellie Wheeler, Rick Heitzmann, Rebecca Kaden, and Beth Ferreira can play the important role of supportive board members as they have seen the pattern of executing on a vision from different lenses during their careers. If a VC’s job is to help the founder through the tight spots because they are the trail-wise sidekicks, what have they learned strategically on execution? In this next section, I’ll provide a glimpse into the learnings on what it takes to build a scalable startup.

  Running Lean or Growing Fat

  A popular startup methodology touted by entrepreneurial gurus is the Lean Startup, pioneered by individuals including Steve Blank and Eric Riess. Riess’ book, The Lean Startup, is a how-to manual to go from ‘idea’ to startup. It’s sold millions of copies around the world. And conferences, workshops, books, podcasts, and university entrepreneurial departments have been built around its methodology focused on customer discovery, validation, and rapid iteration to create the product customers want. Rebecca Kaden of Union Square Ventures is one such believer in this methodology and says that founders, especially those building consumer ventures, should ‘continuously be testing their ideas and hypotheses before putting substantial capital to work.’

  As featured on its landing page, the Lean Startup methodology solves for a trap most founders fall into through a process of customer discovery:

  “[The Lean Startup] is a principled approach to new product development. Too many startups begin with an idea for a product that they think people want. They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer. When they fail to reach broad uptake from customers, it is often because they never spoke to prospective customers and determined whether or not the product was interesting. When customers ultimately communicate, through their indifference, that they don’t care about the idea, the startup fails…The Lean Startup methodology has as a premise that every startup is a grand experiment that attempts to answer a question. The question is not ‘Can this product be built?’ Instead, the questions are ‘Should this product be built?’ and ‘Can we build a sustainable business around this set of products and services?’

  The Lean Startup methodology is designed to lead a founder to their first product. Through a series of customer interviews, the founder will establish their early adopters, add employees to run new experiments or iterations, and eventually, with enough data, build and launch a product that they know customers want. The method is data-informed and built on a premise of a ‘build-measure-learn’ feedback loop. Founders identify a problem and develop what Riess calls a minimum viable product (MVP) to begin their process of learning as quickly as possible. This MVP is basic, requires little engineering and is often a mock-up of what a potential product could look like. The MVP, however, should be informative and provide a better understanding of the problem and the eventual solution to the problem. Another interesting strategy furthered by the Lean Startup methodology, which is also sometimes used by investors to identify if a founder truly understands their industry, is the method called the “Five Whys.” Founders ask questions to study and solve problems along the way and get deep at the root of a problem.

  The Lean Startup is designed to train entrepreneurs to validate ideas and concepts through a process of customer validation. If measuring and learning is occurring correctly, a founder will be able to better understand if their product is working or if a pivot or ‘structural course correction’ is necessary to test new hypotheses. While there is clear merit to this thinking in the minds of millions of entrepreneurs and advisors, Keith Rabois, a founder and early employee of LinkedIn, Twitter, and OpenDoor, and an investor in Yelp, Lyft, and Airbnb, holds the deeply unpopular belief that the ‘Lean Startup methodology is a guaranteed method of failure and mediocrity.’ His criticism is specifically around the MVP and that an unfinished product cannot provide enough evidence. Secondly, he believes that it is a founder’s job to move customers in a certain direction, not the other way around. When it comes to executing on a vision, there are few who would go against the Lean Startup methodology, but according to Rabois, entrepreneurs such as Jack Dorsey and Elon Musk would never follow these principles. While Rabois is in the minority of folks who distance themselves from the popular methodology, it’s worth considering the contrarian view he shared when we chatted for this book:

  “Lean Startup is a bankrupt philosophy for mediocre people with mediocre vision and ambition. These founders aren’t being bold. Instead, they minimize the chance of short-term failure and that is all they come to focus on rather than building something truly great. In doing so, it takes away the opportunity for upside. Startups are not bottoms-up driven exercises. The job of a founder is to paint a picture of a better world and then deliver that, not to go around asking people what they want because those people have no idea yet. The Lean Startup suggests you discover and find success, instead of executing on a vision. More people need to emulate Apple. You ship a finished product and nothing less. As Jack Dorsey at Square says, ‘the customers are not your guinea pigs.’ People who treat customers like guinea pigs have poor net promoter scores and you only have a few chances to earn their respect and loyalty. You can’t keep going back to the customers and saying ‘oh, this is just a test or a question.’ At some point, you need to show you deserve their dollars because you are the visionary.”

  This contrarian view reveals that the distinction is more about believing and investing in founders who have conviction in their vision and who don’t wait for the validation of customers. Separately, the lean startup methodology, a more patient approach to entrepreneurship, is at odds with the venture capital mindset of growing at all costs. This point made my Rabois is perhaps one of the largest distinctions between entrepreneurs who want to build businesses funded by venture capital and those who wish to build businesses without venture capital. Without venture capital, growth is often not an entrepreneur’s primary concern. Instead, they often aim to create a stable business that quickly achieves profitability. The commonly held mentality in the startup ecosystem, fueled by venture capitalists, is to win an entire market through sheer force by raising an abundance of capital to outspend and outhire the competition. Some venture capitalists
, as demonstrated by Rabois’ comments above, do not believe in operating ‘lean.’ Instead, they believe that in order to win a market, founders need to raise hundreds of millions of dollars to reshape their industry and take bold risks. The investors I spoke with were split on this methodology: to build a company by operating lean and raising capital only when necessary, versus raising as much capital as possible and breaking down doors until you succeed.

  Ben Horowitz of a16z is against wasteful spending, especially of venture dollars, but like Rabois, he believes that operating lean will never allow a startup to reach that multi-billion valuation. He wrote in his blog:

  “Running lean is not an end. For that matter, neither is running fat. Both are tactics that you use to win the market and not run out of cash before you do so. By making ‘running lean’ an end, you may lose your opportunity to win the market, either because you fail to fund the R&D necessary to find product/market fit or you let a competitor out-execute you in taking the market. Sometimes running fat is the right thing to do.”

  In a blog post, Horowitz referenced his own experience building LoudCloud in the early 2000s and raising well over $300 million to execute on the company’s vision. In the post, Horowitz noted that a startup must find product/market fit before running out of cash and is constantly balancing those two scenarios. A good founder must work to establish a product that thousands of enterprises or millions of customers want to buy, but also raise enough cash and manage it wisely. Of these two priorities, Horowitz says that ‘taking the market’ is more important than running out of cash because of what he calls, ‘startup purgatory.’ He writes:

  “Startup purgatory occurs when you don’t go bankrupt, but you fail to build the number one product in the space. You have enough money with your conservative burn rate to last for many years. You may even be cash-flow positive. However, you have zero chance of becoming a high-growth company. You have zero chance of being anything but a very small technology business. From the entrepreneur’s point of view, this can be worse than startup hell since you are stuck with the small company. You recruited all the employees, you raised all the money, and you made all the promises. You either see it through or leave — without your good reputation. No one wants to work for an entrepreneur who quits his or her own company. This is startup purgatory, where you work just as hard, reap none of the rewards, and watch all your best people leave you. It sucks to be you. The bottom line: spending a little or spending a lot is a means, not an end. Choose the right strategy to win the market or you may end up going straight to purgatory.”

  Horowitz writes that entrepreneurs should know the virtues of the lean startup — lightweight sales and light engineering — but that they cannot expect to ‘save their way to winning the market.’ Horowitz believes that founders should always consider raising enough capital to wipe out their competition. Founders I meet with are often torn about when and how much capital they should raise. Horowitz and Rabois, based on these comments, are arguing for founders to raise as much capital as they can whenever they can, in order to win the market. I present these conflicting views to show the different theories of capital management and execution as shared by some of the shrewdest VC investors. With the support of the board they put in place, founders must decide on their own where they believe capital should be deployed.

  As a final thought on this point, Fred Wilson of Union Square Ventures takes a more centrist philosophy on the concept of ‘running fat’ versus the Lean Startup methodologies. In response to Horowitz’s “Fat Startup” blog post, Wilson says that most people cannot raise that type of capital because they do not have the pedigree that Horowitz has; investors are willing to trust that he will be a good steward of that level of capital. This is true for most entrepreneurs who have been successful with prior endeavors. Individuals such as Andrew Mason of Groupon, Jack Dorsey of Twitter when he was raising for Square, and Elon Musk for any of the companies he has started have not struggled to raise capital thanks to their prior successes. Wilson says:

  “Ben [Horowitz] does a service to point out that raising a lot of cash and making a large investment in the business is a big positive. But in my opinion you only want to do that once you are 100% sure and have ample evidence that your product has hit its stride, you’ve got yourself in the place you want to be in your market, and you can raise the capital without taking much dilution. If all of those boxes are checked yes, then go for it. But please spend it wisely.”

  Frank Rimalovski, a former VC who now manages New York University’s Entrepreneurial Institute, teaches aspiring entrepreneurs about managing capital wisely and identifying tangible customer problems, before they set out to launch businesses. Rimalovski says that the cost of launching a product has gone down tremendously and believes that founders who think they will launch a perfect product on the first try are operating in a fairy tale. Rimalovski echoes the principles taught in the Lean Startup:

  “I think there is a trap of thinking you need a ton of capital to start a business. That’s a myth propagated by venture capitalists. I think it’s all fiction when founders think they’ll use all this up-front capital, launch a product, and slice the market like a hot knife through butter. I don’t think that ever works. No product will ever be perfect. You will always be iterating on your product and trying to make it better. If you have an idea you’re excited about, before you start writing your first line of code, just start talking about it. Get feedback from the potential target market / customer. Is this really a pain point? Is it differentiated? What are other companies in this space thinking about? You’ll be surprised how little progress you have to make in order to start a conversation with your market. Progress with your business will start only when you start getting market feedback.”

  This debate on building startups with the ‘winner take all’ mentality is something that is clearly adopted by companies such as Facebook, Google, and Twitter, which strive to acquire customers, regardless of the cost. The kinks in this strategy began to surface in recent years with a third perspective in the lean startup debate. The mantra of ‘move fast and break things’ was concepted early in Facebook’s history; but in 2018, that radical statement was portrayed in the press as “Facebook moved fast and broke democracy.” The ‘grow at all costs’ mentality — without customer validation or regard for what the customer believes to be correct — is one that has Hemant Taneja, a partner at General Catalyst, questions. He calls for re-thinking how startups should be built as we go into this next generation of venture capital and technological disruption. In this new era, where technologies around artificial intelligence, data security, gene editing, and quantum computing become realities, founders who execute with more capital have more responsibility to humanity. The unfortunate lesson of Elizabeth Holmes and Theranos is living proof of what happens when the philosophy of raising abundant capital to achieve a dream without proper execution goes awry. Taneja says there needs to be a more measured approach to execution. In “The ‘Era of Move Fast and Break Things’ is Over” published in Harvard Business Review, Taneja wrote:

  “More often than not, venture capitalists promote a “winner-take-all” mindset, pushing expansion at the cost of impact on initial customer targets. This is increasingly untenable: the speed with which more narrowly-cast solutions can supplant incumbents means that subpar services will be replaced. The market will punish premature growth, to say nothing of the ethical issues inherent in hooking customers into half-baked solutions in healthcare, financial services, or other critical industries. We should not ignore the moral implications of the old “land and expand” business aphorism. Today when I talk with entrepreneurs about how quickly they can grow, I want to see them recognize that creating a “virtuous” product may require them to grow more slowly than they might otherwise.”

  Building with core values in mind and keeping those central to a startup operation become essential as one of many metric areas categories that should be measured as a startup grows
into a larger organization.

  Measuring What Matters: Metrics and Milestones

  According to Matthew Hartman, a partner with Betaworks, once an early-stage business has established ‘why’ it will raise capital and ‘how’ it chooses to spend it, the company must measure and track the milestones for their business. This relates to the concept of ‘testing ideas and measuring the experiments’ prior to betting the future of the company on a new product set or business model. While this is fairly obvious, a common challenge investors such as Hartman have noticed is that early-stage founders often try to measure multiple performance indicators; but only a few of them are actually relevant to their company’s growth. An abundance of metrics and teams tracking towards different goals creates confusion around strategic planning and execution. The key to a founder executing properly is figuring out the core metric that drives a business forward and the value the company is creating. Everything a founder does should relate back to that metric, Hartman explains:

  “Where I often see founders mess up early is that they track key performance indicators (KPIs) for one thing like ‘page views’ or ‘time on page’ but their business model is based on something entirely different. For example, the business may be built around a software product that is being sold to publishers and charged on a per-seat basis, but the CEO is measuring page views as a measure of success. That is not his or her function or what the company should be tracking towards to know if they are doing well on a monthly or quarterly basis. The way you generate revenue is different; the function of engagement may be page views or head count, but that’s not what is driving a return. That’s the thing everyone has to be honest about.”