All posts by Mukund Mohan

My discipline will beat your intellect
Entrepreneurship, Tips

Why founders split? 3. The shiny new object syndrome

8 Comments

R, Ra and M were the 3 co-founders of a SaaS company, I met first more than a year ago. R and Ra were related to one another and M had worked at a company that R was a client at. R was the “domain expert” and knew the business problem fairly well, whereas M was more the “tech person”. While M was not a developer per se,  he was most technical of the 3 co-founders.

Ra was the “business development” person whose role it was to talk to customers, get some “partnerships” signed and talk to potential investors. (Side note: I dont understand business development roles in any small company. Either you are a sales person or you are a developer. Everyone else is overhead). In other words a catch-all bucket.

Ra was asked to join by R, who felt that between M and himself, they both did not have enough of a sales background and decided to get someone they could trust to do the role.

Ra himself was previously a new business development executive at a large corporate bank. He had done well at the bank and had made his way to associate vice president in less than 5 years. He had very little knowledge about the space in particular or passion around it. He wanted to do a startup and since he was approached by R to be a co-founder, he was pretty excited about it.

For the first few months, getting potential customers to talk to, with respect to the new product they were building, was not difficult. Most people who R knew were interested and keen to talk and learn about the new product. Ra was involved in all discussions and was trying to get up-to-speed with the intricacies of the market and customer problems.

R was the most passionate of the lot and knew the most about the problems, while M leveraged 2 external outsourced resources to get the initial prototype ready. Things were going well apparently and I met them at the Microsoft accelerator during an event.

4 months later I heard that Ra had left. I did not meet Ra, but R had spoken about him highly, so I was curious why he left.

R said he could not close any new deals and did not “understand the market”.

While I pointed out that R knew about this before since Ra was not a market or domain expert, he evaded the question with “but I expected him to learn quickly”.

When I spoke with M separately he mentioned that Ra never got really passionate about it and there was little effort on Ra’s part to understand the market. While he felt that Ra setup a lot of meetings with other potential customers and investors, none of them really “closed”.

Ra, sent me a LinkedIn request a few weeks ago. In his invite he mentioned he was working in a new project and would like to come and meet me. Over email I quickly asked him why things did not work out. He said that in his perspective the market was clearly not ready for the product and he found that he could find better things for him to do with his time and he “lost interest” because he found a really awesome new idea that he was focusing on.

The final in the series why startup founders split is something I have heard from 2 teams, so I dont necessarily think I have enough data yet to confirm that this is a trend, but its important to document.

Founders usually split because they have different visions for the future of the company or one of them is not executing to the plan.

The shiny new object syndrome occurs when the company does not have enough or sufficient traction and the founders finds something new that they would rather do.

There’s a lot to learn from the story above that talks to more than why they really split, but the bottom line I gathered was Ra was not completely bought in and did not have the passion for the space, so the shiny new object got him more excited than anything with limited traction.

While I think its fair to lose passion for something you dont see too much traction, many a time I have personally seen that you need to spend a lot of time before you really get significant momentum.

Entrepreneurship, Learning

The mystery of success and the articulation of failure

7 Comments

Yesterday a comment was made about why I dont interview successful founding teams instead of focusing on why founding teams split. Actually I did. I spoke at length with Sachin from Flipkart a few weeks ago as I have done several times with Amit Gupta of InMobi and Phani of Redbus and Vivek of Interview street.

Successful people are loathe to describe their success, often talking about “luck” and most often calling themselves “not yet successful”.

Those that failed, however, at anything are often able to point to 1-3 things that they believe were the reasons they did not take off.

I think its relatively easy to assume that 100 things need to go right to be successful, whereas only a few things (or in some cases 1 thing) needs to go right to be a failure.

That directly contradicts my core hypothesis that in any given startup its never one thing that causes failure but a series of things that are not executed well – back to Mark Suster’s comment about lines not dots.

I also think most people analyze failure a lot more since it hurts. That’s a contradiction as well. I  would think most people would not like to think about things that are not “fond memories”. Turns out we remember bad things better because they affect our memory systems more. There’s research that suggests this to be true.

Still that does not explain why people cant articulate success as well as failure. Or am I just asking the wrong questions of the wrong people?

Entrepreneurship, Hiring

Why do founders split? Performance and Execution

5 Comments

Both A & V met at their company cafeteria a few months before they decided to work together and start their venture. A was a front-end developer and V was a SEO and web analytics consultant. They both worked at the large company separately for 3+ years but did not have the chance to work together at all.

They were both in different teams and their paths did not cross very much. While standing in the cafeteria line, they got chatting about a weekend event and found they had several common interests and similar aspirations.

They decided to spend the next few months, talking about various ideas they had, mostly around starting a new venture in the eCommerce space. Neither had much experience in ecommerce, but they figured they would be able to add an operations person later.

4 months after their meetings they chose to build a online platform (one that held no inventory, but sold multiple products) for computer and mobile accessories of all kinds.

A, built the first version with some help from another friend who was the backend expert who offered some time in exchange for coming on board full-time if the venture got funding.

V focused his efforts on talking to suppliers and also helping A on some of the SEO work. Besides setting up their social media profiles, he also spent time taking to courier, payments and logistics partners to setup relationships.

3 months after starting they did a launch with friends and family. Response was good (relatively speaking), with 3 orders in the first day and over 5 in the next week.

I met them when V sent me their plan and asked for a meeting to discuss their seed funding requirements.

Given that I have had a poor track record with eCommerce companies and I dont like investing in them I declined the meeting.

A few months later, I met V at a startup event, when he mentioned that they both had split. He mentioned that the site kept going down and A was a good front-end engineer but not a strong developer overall, he said that they both had decided to shut down their venture.

I have not met A, but did check out his work and website. While I would not call his work legendary, it was not too shabby either.

The second biggest reason why founders split besides having differing vision is they both dont believe the other person is performing or executing as well as they are.

Rarely do they look in the mirror to see their own shortcomings.

There have been 2 other cases where I saw this similar situation. One person is either not executing at all – for various reasons or a deliverable or two is missed and friction sets in.

In one case a founder had a new born child within a month of the venture getting off the ground and had to spend a lot more time at home, which made the co-founder irritated and angry. They split and eventually closed the company.

I was surprised that they did the venture together knowing that one of them was going to have a baby.

When a pattern of execution and delivery on commitments is not set, then friction sets in very easily.

Its very hard to figure out if someone is executing well based on their “resume”. Most resumes are inflated (I am guilty as well) to “sell” and “position” the candidate in the best light. Even if they have worked at a position where its fairly easy to determine if they deliver and execute or not, it is mighty difficult to discern whether they were good because of the system built around them or because their manager extracted the best from them.

The only way to determine that is working together.

What takeaway do I have from this second reason for founder’s splitting?

I prefer to fund teams that have worked together in their new venture for more than 6 months. That’s an arbitrary number no doubt, but I dont have an alternative.

Teams which have worked together before, need to be working together again before I am sure that they know how to work with each other in a new environment without the support system they had before. There are exceptions, but they are rare.

I am hoping again that this is a demand and supply issue that resolves itself in a few years. Right not there are too many opportunities (thanks to Angel List) for good companies with high performance teams that have worked together for a while for me to even consider teams that have relatively younger working histories.

Entrepreneurship, Learning, Personal

Why do founders split? 1. Differing visions

7 Comments

Over the last 4 months, I have heard of or at least 8 companies closing down because of “founder issues”. Overall this number of companies that I have been tracking personally where the company closed was 14. So relatively speaking the number of companies that closed because the founders split is larger than “lack of funding”. The only other reason I have heard have been lack of traction. These are companies in the valley and India BTW.

Why do we have so many companies which close because of founder issues?

I tried calling and talking to many of the founders separately to understand what the issues were and its not clear that there are the same that plague most “marriages”.

Most married couples split because of financial issues, compatibility issues or “cheating”.

With most founders, I cannot point to the 3 main causes yet, since I have limited data, but I can share what happened in some of these cases, based on my understanding of their situation. Sometimes, my understanding was colored by my impression of one of the founders, but I tried to remain objective about the situation.

Differing vision of where to take the company. This was cited by most of the founders.

“We  used to talk about where we wanted to take the product. We had a general direction and were fairly aligned. Then it started with a few features that we had different opinions on. In a matter of weeks we would constantly fight about every feature. The constant fighting drove our team mad and we decided to split”.

“We started with targeting large enterprise customers, since my co-founder had a few relationships there. We found that many had a long time frame to get us on board as a vendor. Then we decided to change our target to mid-sized companies. That changed the vision of our product and some key features, which the developers could not deliver on. I still thought we could focus on larger customers, but my co-founder did not and we decided to split”.

Many times, the vision of the company is considered very sacred by the founders. Which is a good thing. Alignment of vision is hugely important. I can also see how the vision changes at times, since the initial assumptions made, usually change as you go to market and meet customers.

Some founders are flexible about that change and are willing to be patient about finding that vision, whereas others want to stick to a vision they originally came up with.

If you are a solo founder and are looking for a co founder, it is hard to determine flexibility of your co-founder since most people seem reasonable and fairly flexible during the first few months. I tried to formulate a list of questions to ask – largely scenario based, such as what would happen if this were to occur, or how would you react if this happened?

Most times when I asked those questions of people I got fairly good answers which I consider are reasonable.

These questions did not help very much though, since as we talked about before, vision’s change and so do people’s impressions.

When you ask the objective question in a non threatening situation, it is easy to be collected, objective and composed.

That’s rarely the case when product shipments are behind, payroll is delayed and a customer contract is taking longer than anticipated.

What takeaway do I have from this main reason for founder’s splitting?

If you have not worked together for a “significant period” of time, its very difficult to find out if your co-founder is flexible to change.

So what do I now do as a result of this learning?

I prioritize teams where founders have not worked together for a significant period of time, much lower. If you have a co-founder you have met at a hackathon event, or a startup event, and have been working on your company for 4-6 months, then I would likely pass on your company.

Its not because I dont like your idea or product, its because of demand and supply. Right now, I get many more companies where co-founders have worked together for much longer and have recency of shared vision.

In the next post I will talk about another reason why founders split – performance and execution.

Angel investing, Community, Funding

Why do investors use boilerplate emails instead of telling you the plain truth?

6 Comments

Most every day I get 2-3 requests to review companies for investment in the seed stage as an individual investor. Since I keep a fairly open network on both LinkedIn and Twitter, I get many folks sending me an email to review their plans. While I do read all of their emails, and send them a response, only 1 in 10 get me to open their plans.

It tends to be fairly easy to decided not to pursue based on their description of the problem or their background. Although I have put my criteria for investment on my blog, rarely do people read it.

I dont think entrepreneurs have internalized the changed landscape for funding of all types.

I do send a quick email to everyone of the people who I dont intend to invest in with a short 1-2 sentence reason. Either its because I dont like the market, the idea or dont believe it will work.

I used to be brutually honest initially (a few years ago) and have mellowed down over the last year. These days if I say I dont have time, it really is the truth. Its not because I dont like the plan or the entrepreneur or the idea. Its just because I dont have the time to evaluate the company.

The main reason I mellowed down was the feedback I heard from many entrepreneurs who had not developed a thick skin that my response was really disheartening and counter productive.

I read today, Paul Graham’s piece on VC boilerplate that Harj Taggar wrote and was amused initially, but the reality is most entrepreneurs prefer to read emails from investors that have some boiler plate stuff rather than the honest truth. I mention most, not all.

Its hard to find know which entrepreneurs prefer the straight up honest truth versus the ones that prefer to get a pat on the back with some encouragement to keep going.

Practically speaking the email from Harj, has 25 sentences too many. If all the email said was “it’s currently a little early for us to step in here.”, that would suffice. If there was more detail, i.e. the number of users, or too few customers, etc. it might help, but really it rarely does.

Why?

Primarily because you get into a shouting match about why the entrepreneur thinks you should be investing at this stage and why you are not an “angel investor” if you wait longer or that you (as an investor) are very risk averse. See comments on my post earlier on what you should have ready before you approach me to get a sense for that.

I invest in very few deals every year (most likely 2) and so do most VC’s. Like most of us we are all pressed for time. Short email responses with quick no should help, but realistically most entrepreneurs dont like that.

Entrepreneurship, Mentors

The fallacy of providing “great mentorship” in 1 hour chunks

4 Comments

I have a good friend who has been a successful corporate executive for over 15 years. Off the charts smart and with a keen sense for the “inner issues” driving other people, he is able to figure out the root cause of most problems faster than most people I know.

He does though have a lack of time, like most other people. Having been in a large company for most of his career, he wished to live vicariously through other people and was keen to “mentor” young entrepreneurs. My advice to him was to focus on helping younger people in his company rather than entrepreneurs. He seemed to think about my tip, but chose to ignore it.

He setup 1 hour mentoring sessions with 3 entrepreneurs who he felt were working on problems that he was keen to understand more about and wanted to help them while he learned more about the market they were targeting.

Each session was fairly standard and given his corporate background, were scheduled a month in advance with consistency and a sense of purpose.

After 2 sessions, 2 entrepreneurs said they were busy and could not make the call or be in person.

He did feel he brought value to them in both the sessions and heard from the entrepreneurs that his advice was valuable. While he was in the process of scheduling the follow up, one entrepreneur told him rather bluntly that he did not have the time.

My friend took it rather well, and wanted to understand how he could make the time more valuable. Both entrepreneurs said the same thing.

There were pieces of advice that they could get from my friend, but they did not have the time to execute on his suggestions and felt that while well meaning, most of the suggestions were not precise enough.

Note that they did not say that the suggestions were not actionable enough. They said that the recommendations were not precise.

I get nearly 2 executives and mid-career professionals from larger companies and older entrepreneurs wanting to be a mentor at the Microsoft Accelerator each week.

Most we reject.

Some because they just want to add the mentor title to their LinkedIn profile and dont have enough time to provide.

Most others because they want to compress the “mentorship” in chunks of 1 hour sessions every month.

Its hard to do anything well in 1 hour chunks in infrequent periods of time. Even if its frequent the context is fairly limited.

Its even harder to provide any value in a 1 hour mentorship session.

Which is the prime reason I am not taking any new “meetings” to provide feedback and advice to new entrepreneurs who are not in our accelerator.

There’s very limited to little value that the session can actually provide is my experience.

I might feel good about it, so might the entrepreneur for about 15 minutes after the meeting. When the dust settles, though, after a day or two, they realize the multiple edge cases and scenarios that my advice or suggestions wont really work.

If you think you can provide value in 1 hour chunks as a “mentor” I’d love to hear how you are doing it and how you measure the value of your advice.

Marketing, SaaS, Tips

The least action principle applied to the “call to action”

3 Comments

I met with an entrepreneur who has been looking to gain traction for his new SaaS application for payments. Having talked to a few of the top notch marketing and conversion experts in the Bay area to learn about drip marketing, which allows you to set a set of messages over time I was eager to help him figure out how to apply that to his problem.

The problem he had was that his “call to action” – what he wanted his prospects and customers to do was creating a “very high barrier” to prospects going to the next level with the website.

I find this often the case with many startups and SaaS applications in particular. The “barrier” for a prospect to become a customer is very high, so while you generate a lot of traffic and visits to your website, the number of conversions is abysmally low.

While you could offer better design, clear case studies, A/B test your pricing, there’s another technique that’s fast gaining traction among those that believe in a sales term called “lead nurturing“.

Its is the least action principle applied to prospect behavior. Before you “riff” me on this, yes, I believe physics gives the answers to most marketing problems.

The summary of this principle is

 “Nature is thrifty in all its actions”

So this principle applied to conversion marketing is to make users do the least amount of work to get to the “next logical step” in your progress to convert them to be a customer.

Instead of asking users in the first page to “Sign up”, which may well be your ultimate goal, ask them to view a video instead. Then sign up for a newsletter. Then send them 3 emails (over time, drip marketing, remember) to get them to review a case study, provide them with ROI analysis and finally ask them to sign up.

This entire set of steps can be done in days or in 2-3 minutes with a “guided” website interaction, instead of just a single call to action.

If you remember that most people want to do the least amount of work to get the maximum benefit, then you will appropriately break down your final call to action into multiple “Least User Interactions” each of which gets the user to commit some more (time, energy, etc.) to your application.

This is similar to the method FB for example applies to its interactions. You might just be a viewer of content, then your path to least action is a “like”, then you might comment, then set your status and finally upload a picture. There are more actions no doubt, but the path to least action is a like.

So when you look at your call you action, think about how you can break it down into multiple steps to get users to interact with your website without having to “commit” to marrying you before your first date.

Entrepreneurship

My latest piece on Mint: Question bank approach to learning from failures

3 Comments

I devised a new system to help me make sure I can learn from my past failures in the most opportune time. I call it the learning question bank. The question bank is a curated list of failure learning condensed into one to three questions in each category that I ask myself when I am faced with a new problem which has possible associations with something I have failed at doing before. I review the questions in the bank after I meet entrepreneurs to evaluate their opportunity and see if they can learn something from my failure. I usually send them an email, post our interaction to give them my experiences via the story of my failure which brings the learning back to the forefront.

Read the entire piece at Mint.

Funding, Tips

How do I close an investor who has shown interest in my startup?

6 Comments

I had discussions with 2 entrepreneurs who have received angel investor interest thanks to Angel List. They are doing well, getting traction and starting to get interest from potential seed stage investors. The question they had for me was to learn the art of the close. Much as I dislike the word closing a deal, I think its important to achieve the important milestone of completing a round of funding.

First its important to realize that most folks (nearly 95%) of investors do not whip out a check in the first meeting. They may make their decision within the first few minutes, but after that, its the delicate dance.

There are 2 primary strategies that I use to help move the funding round to closure.

First, build the relationship beyond the first meeting. The technique I use is “drip marketing”. Every so often after meeting with them I would send them an email (either every other day or once a week for 2-3 weeks) giving them an update one some progress in the business. The first email would be about a new customer win, the next about some potential partnership or a new press mention, etc. Usually most entrepreneurs send one follow up email and if they receive no response they stop.

I would actually send 2-3 emails and keep sending them an update until they say they’d like no more updates.

The second strategy to get their help or advice on opening a door at one of their portfolio companies. This could work against you if you cant close that opportunity, but usually they appreciate the fact that you followed up. This helps them understand your ability to follow through.

The final strategy takes more time and helps you more than them. I put together an operating plan. An operating plan comprises of 7 unique and distinct plans, each of which cover an aspect of your business – sales, marketing, engineering, hiring, finance, product roadmap and partnership plans. This plan has to document your assumptions as well so you can then have them help you validate those assumptions.

Here is my original BuzzGain operating plan (incomplete) from 2009.

You might think this is a lot of work, just to get their money after they “agreed” to give you money with a verbal commitment, but trust me this works you get things moving faster than if you did not use any or all of these strategies.
Try it and let me know if it does not work.
There is a method and template to each of your 7 areas, but we’ll cover that in a separate post.
Entrepreneurship, Management

How much traction is “enough” to get seed funded? or to get into an accelerator?

14 Comments

I had an interesting conversation yesterday with an entrepreneur who had an initial product that was built over 3 months and they were looking to get “traction”. The product was aimed at prosumers (professional consumers) or small & mid-sized companies. He was looking to raise a seed round of $250K and was wondering how much “traction” will he need to show so he can get funded by a combination of individual angels and possibly a seed fund. He’s in the US, so this framework is valid for both India and US.

Here’s a framework for you to think through the traction for your startup. You need to get traction post your MVP. Your MVP should solve a real problem that a potential customer has.

Having been in 100 presentations over the last 4 weeks alone (our demo day at the Microsoft Accelerator, 50+ pitches for our new batch at the accelerator and 30+ pitches at the 500 startups demo day) I can say some patterns emerge.

This is rule of thumb alone. This is NOT a guarantee of funding. I had a chance to talk to about 50+ seed and venture investors, so I know I am in the ball park, but YMMV.

Take your best case scenario of peak # of customers at 36 months (2 rounds of funding out). If you are a B2B startup that might be 500 customers in 36 months for example or if you are a consumer product, that might be 20 million users in 36 months.

The 36 months is critical. Its 2 rounds of funding. Seed and Series A. Or series A and series B.

The “traction” that’s relevant for your current stage should be in the range of 0.1% to 0.5% of your projected 36 month customer base.

0.5% means you can command the top end of the valuation. 0.1% means you are likely to get a serious look.

To get to an accelerator such as Microsoft or 500, you will need 20% to 50% of that user base to get a serious look.

Some examples:

If you are expecting 10 Million users for your product (best case scenario) for your product in 3 years (36 months) then you better have between 10,000 to 50,000 users when you go to get seed funding. To get into an accelerator you will need to have 2000 to 25,000 users at least.

If you are a B2B startup and you are expecting 5000 paying customers, in 36 months, to get seed funding you need to have 5 to 10 customers for a seed round (more is better) and at least 2-5 customers to get into a seed program.

Please let me know if you think this makes sense (Or not).

Thanks to Pankaj Jain and Dave McClure for helping review this.