Launching a company is not the same as placing a bet

Last week I wrote a post diving deep into how Jeff Bezos' went about turning is grand vision into reality. This example is more than just an anomaly in terms of Amazon's level of success but also because of  Jeff's founding story. In this video from 1997 he explains how we was working at a quantitative hedge fund and realized Internet usage was growing rapidly. He decided to launch Amazon and started selling books simply because he thought it was the best way to get in on the action. It was less of a customer need driven story as it was Jeff placing a bet on e-commerce.

Like many famous entrepreneurial tails however, aspiring entrepreneurs often walk away with exactly the wrong lesson learned. The lesson here is not that if you want to launch a tech company follow Jeff's founding story, in fact it's exactly the opposite. Jeff's founding story, much like the success of his company, is the exception not the rule.

I've met with probably 20 founders this year who all came from a "traditional finance" background and probably 90% of them have followed a very consistent and very concerning pattern. Their founding stories all start off in the same way:  "I was working for XYZ financial firm and I noticed a trend/need/problem/opportunity in ABC industry so I decided to launch the company."

Here's the problem with this situation: launching a tech startup is not the same thing as placing a bet! The mindset of a hedge fund investor does not translate to the mindset of a successful tech entrepreneur. When an entrepreneur treats their startup as if it were a hedge fund investment they typically run into the following problems:

  • their value propositions become overly complex
  • their view of the market sounds like it came from a market research report not from customer interviews
  • they launch companies from day 1 that act like big companies in the worst sense: offering lots of products to lots of markets
  • they don't seek out a niche of early adopters they can corner but rather focus on how to monetize every single lead they generate regardless of quality
  • they "go-to-market" with tunnel vision, stubbornly executing their plan without running experiments and adapting as they learn more about their customers
  • and for some reason they all seem to recruit very homogeneous founding teams where everyone has a financial background.

Not all founders with a financial background are like this. In fact some of the most successful tech founders previously worked for firms like Goldman Sachs. Having that 10,000 foot financial view can be a huge asset to an entrepreneur. Where many founders run into trouble is that they only take the 10,000 foot view and pretend as if the ultimate success of their company will depend upon the same factors that ultimately determine the success of a hedge fund investment. That's simply not how startups work.

The problem that each one of these characteristics creates is that it makes it very difficult for a resource strapped startup to generate repeatable scalable sales. Are there teams that have done it? Sure there are. The lesson is once again that they are the exception not the rule.

If you're a founder in this situation then the takeaways are two fold:

  1. Use your ability to see the broader market to help guide your competitive positioning but resist the urge to let it determine your early-stage growth strategy. In other words don't try to grow like a big company. It's very hard to do 1 thing really well and almost impossible to do 10 things really well. Start an inch wide and a mile deep in a high value niche that you can own.
  2. Build a more diverse founding team. Bring people with industry experience, sales/marketing experience and ideally at least 1 to 2 people with experience as a founder or early employee at a tech company. Augmenting with advisors can help but it's more of a temporary solution. Leverage your strengths but be humble enough to recognized your team's shortcomings as well and bring people on who understand what it means to launch a tech company.
James Shomar
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