Venture Hacks

This post is by Mark Suster, a serial entrepreneur turned VC at GRP Partners. If you like it, check out Mark’s startup advice blog and his tweets @msuster. And if you want an intro to Mark, send me an email. I’ll put you in touch if there’s a fit. Thanks. – Nivi

This is the last in a three-part series about the 10 things I look for in an entrepreneur. In Part 1, I addressed tenacity, street smarts, resiliency, ability to pivot, and inspiration. In Part 2, I discussed perspiration and appetite for risk. I elaborated on each of the topics in my blog series on VC startup advice.

Most successful entrepreneurs have an attractive mix of skills, know-how and personal qualities that separate them from the herd. Today I cover three more of these critical elements and throw in a couple of bonus entries that didn’t make my top 10 list but are important nonetheless.

8. Detail Orientation

One of the easiest ways to rule out an entrepreneur is when he doesn’t know the details of his business. There are tell-tale signs, and discussions about competitors often expose them. You can tell whether an entrepreneur has logged into his competitors’ products, talked to their customers, read news coverage of them and gotten the back-channel info.

You can tell if the entrepreneur has a deep-seated competitive spirit. Can’t go a mile deep on competition? Buh-bye.

Let’s talk about your product, and let’s look at your financial projections. Can’t walk me through them on a granular basis? Did someone else pull your financial model together while you did “your job”? Not good enough. The best entrepreneurs focus on details. They can tell you the square-foot costs of their property, how much they spend monthly on Amazon Web Services, and the 12 features being developed for the next release.

Another big tell is a CEO’s grasp of the sales pipeline. I can’t tell you how many CEOs I’ve met who can’t walk me through the details of their sales pipeline. I want the names of key buyers, when you met them last, who the competition is, and what the criteria is for making a decision. You think we’re just going to talk about your largest lead? Sorry. Let’s go through the whole pipeline, please. I care about the details, but I’m more interested in finding out whether you do.

Along with detail orientation, I have a strong bias for “doers”. When I ask for a quick demo and the CEO suggests a follow-up meeting with a sales rep because he’s not “a demo guy,” I usually think to myself, “A follow-up meeting probably isn’t necessary.” Similarly, if you need your CFO to walk me through your financial model, you’re probably not the right investment for me.

Ask any CFO I worked with as a CEO: They did the hard work, but I edited the spreadsheets cell by cell. In fact, I usually built the first three versions of the financial model (but then my ADD took over, and I needed a great closer to make the model complete). Founders need to be hands-on. As I wrote in an earlier blog post: “You can’t run a burger chain if you’ve never flipped burgers.”

A startup seeking investment from me once put their “president” on a call with me. When I told him that “president” was a strange title for a startup, he announced they also a CEO. When asked about their different roles, the president told me the CEO set the strategy while he traveled to conferences evangalizing on behalf of the company. “So who runs the company on a daily basis?” I asked. “Oh,” he responded, “we have a COO.” The company had under $1 million in revenue and was burning $850k a month. It had a strategy-setting CEO, a limelight-seeking President and a COO who ran the company.

I gave that company one of the cheekiest responses I have given in my two and a half years as a VC: “You don’t want to raise money from me,” I said. “The first thing I would do is fire you. Then I’d fire the CEO. Then I’d cut the burn to a realistic level and build a company.” They got their round done anyway from a big late-stage VC. One of the large parts of the burn was PR, marketing, and conference attendance. There are VCs who are fooled by all of this, but it doesn’t equal success. A year later the president and the CEO had moved on.

Bad VCs funded this madness in the first place and weren’t close enough to the company to see what was happening. When the CEO of an early-stage startup tells me he plans to hire a COO, I’m usually not interested in another meeting. (Funny side-note: The company was recently nominated for a Crunchie Award. Unfortunately, money can buy you awards.)

9. Competitiveness

As I wrote in my previous post on perspiration, good ideas attract competition.

Everybody these days is fascinated by the “private sale” concept offered by companies like Gilt, Ruelala and HauteLook. There are some great companies in this category, but the initial category killer was a French company called Vente Privee (which translates to “private sale”). From what I’m told, the founders were in the Schmatta (Jobber) business selling other people’s excess, end-of-line inventory at a bargain. There wasn’t the same end-of life infrastructure that we have in the U.S. (think T.J. Maxx), so they had an early lead. When the internet part of their business took off, a number of competitors surfaced.

By then, Vente Privee was a powerhouse and they used that market power. They made it clear to suppliers that Vente Privee would stop carrying their products if they supplied the newly formed competitors. This was a bare-knuckle industry, and money was at stake. Good competitors fight.

Just ask Overture about Google (“Don’t be evil”) and how they competed in international markets. It wasn’t all smiles, hugs and “let the best man win.” A lot was at stake, and Google competed fiercely.

Have a nice little idea and think you can carve out a large market niche? Not if you’re a nice guy. I’m not saying you need to be an arsehole, but entrepreneurs hate to lose. They’re hyper-competitive in everything they do. I look for that fighting spirit in the individuals at my table. It doesn’t matter if they’re playing golf, poker, Ping-Pong, Scrabble, or Guitar Hero. Entrepreneurs play to win, and they take losing seriously.

Think Mark Zuckerberg doesn’t have some sleepless nights about Twitter despite having more than 300 million users himself? Steve Jobs isn’t a “nice guy.” Nor are Bill Gates, Steve Ballmer, Marc Benioff, Larry Ellison, Tom Siebel, Rupert Murdoch, or any number of people you’ll find who built empires.

10. Decisiveness

Being an entrepreneur is about moving the ball forward a few inches every day. What astounded me when I switched from being a big-company executive to an entrepreneur was the sheer number of decisions I had to make on a daily basis.

They sound so basic when you’re not the one having to make them. Should you go with Amazon Web Services (AWS) or have your own servers hosted at RackSpace? Should you build in Ruby, Java, or .NET? Should you sign a two-year lease or rent month-to-month? Should you hire an extra developer now or a business development resource? Should you take angel money or just go for a seed round from a VC? Is venture debt a good idea? Should we launch at TechCrunch50? Should we charge for a product or offer freemium? Should we ask for a credit card up front, even if we don’t charge for 30 days?

It never ends. There is no such thing as a startup decision with complete information. The best entrepreneurs have a bias for making quick decisions and accept that, at best, 70 percent of them will be right. They acknowledge some decisions will be bad and they’ll have to recover from them. Building a startup might be a game of inches, but you don’t get timeouts to pause and analyze all of your decisions.

I recently have been considering investing in an entrepreneur in Silicon Valley. He was deciding between taking another senior role at a prominent Silicon Valley tech company and starting his own business. I told him I didn’t think he needed any more resume-stuffers and now was the time to go do something big on his own. Within a week he delivered a deck outlining his strategy for a new company. A day after we discussed the possibility of him flying down to meet with my partners, he was on a plane.

He then booked tickets to China to talk with suppliers and promised to revise his strategy by the time he returned to the U.S. He is getting stuff done in entrepreneur years, which is a step change faster than dog years. By the time we speak again, I’ll be able to judge results by the quality of his thinking about the opportunity. But by that time, I imagine, he will have made so much progress that he’ll question whether he should take my money. I’m certain he will have talked with other funding sources. This is how it should be.

If you’ve been “thinking about doing something” and batting the idea around with your favorite VC more than six months, don’t be surprised if they’re not prepared to back you in the end. Entrepreneurs don’t “noodle”. They “do”.

Now that I’ve addressed the top 10 skills I look for in an entrepreneur before investing in them, I’d like to offer two additional qualities that can be critically important but won’t necessarily hold someone back from seeing success.

11. Domain Experience

This isn’t a “must” for me, but it’s certainly a huge plus when entrepreneurs have it. You can spend a year putting your hypotheses on paper while researching a market. But you never really have a handle in the minute details of the industry until you’ve lived in it. If you are launching mobile application and have sector experience working for Apple, Blackberry, AdMob, or JAMDDAT, then I know your product will have your experiences baked into it.

I learned this lesson when I launched my first company in 1999. We offered a SaaS document management in the cloud (we were called ASPs back then). I had no experience in document management systems beyond being a user, and nobody had SaaS experience because the market was too new. We were forced to make assertions about features we thought people would want, how to price them, and how to overcome objections to managing data in the cloud.

When I began hiring product managers, sales reps, and implementation staff, I benefited from what employees learned working at places like Documentum and OpenText. They brought the lessons they had learned in their companies
 over the previous decade. I know this stuff cold now. So when I launched my second company – which was also a SaaS Document Management company – we already had a vision for what would do well in the marketplace.

Domain experience also brings relationships. If you spent three years building relationships with senior executives at media companies, a starting point for your next business ought to be, “How can I exploit these relationships in the next venture I launch?”

One successful entrepreneur I know wanted to launch his next venture in financial services because it was a bigger industry. Fine. But I pointed out that he would be up against competitors who had spent years building relationships with the big financial services companies (as well as channel partners), and he would be starting from scratch. I’m not sure why you’d do that unless you had to.

12. Integrity

The most obvious attribute that didn’t make my top 10 list is integrity. It is very important to me. If I thought I could make a lot of money backing a dishonest person, I personally would pass. I know many private equity firms that would not. I’m proud that most early-stage VCs I know care about making money ethically. So you should include integrity on my personal list of attributes
 required to raise money from a reputable, early-stage VC.

Unfortunately, people with low integrity can be successful and can raise money from investors. So I left it off the master list. I personally know a billionaire CEO who I wouldn’t put high on the list of people with high integrity. But he built his company from scratch to become a very large enterprise.  He is well respected (but not liked) in his industry and in his company.  He spends a lot of money on personal marketing so the story is written the way he wants it.

But I’ve seen his actions up-close and wouldn’t claim that they are high on the integrity scale.  I’ve heard this about similar technology executives of some of the biggest names in history.

I also know him to not be a very happy man.  Money can buy a lot of things but, as the saying goes, it can’t, in and of itself, buy you happiness.  I believe that true happiness comes from a sense of fulfillment, giving, and doing what your moral compass knows is right.  Better that you be this person, whatever level of business success you achieve in life.

If you like this post, check out Mark’s blog and his tweets @msuster. If you want an intro to Mark, send me an email. I’ll put you in touch if there’s a fit. – Nivi