This guest post was written by Rick Marini, a serial entrepreneur in Silicon Valley for the past 14 years. He is currently the Founder and CEO of BranchOut and Talk.co. He is also an active advisor/investor in 25 private companies.
It’s a harder question than you might think. I speak with a lot of people who think they have the next big idea. They see guys like Kevin Systrom and his 12 employees at Instagram sell for $1 billion to Facebook. Seems easy, right? They see “overnight” successes like Twitter, Dropbox, Pinterest, Evernote and LinkedIn but often don’t realize that all those services took several years to gain traction. Those companies all fulfilled basic human needs (centered around communication and sharing) and leveraged technology to scale the hell out of it. So just identify a basic human need, add some cool technology and wait for the billion dollar offers to roll in, right? Not even close. The reality is start-ups are hard. Plain and simple. Caveat emptor.
But I have a good idea, right? And I can be first to market, right? This could be huge, right? I hear these questions (spoken more as definitive statements) a lot as I talk to young entrepreneurs that I may mentor, advise or invest in. I like to tell them “if you think you have an incredible, innovative idea, you should assume that 5 other entrepreneurs are already pursuing the same idea”. I realize that is not always the case but it’s probably more right than wrong. It helps to frame the bigger question that I pose to them next, “In the face of that potential competition, can you out-execute them and win the market?” This is when the conversation gets serious and I ask five hard questions.
1. Are you willing to quit your day job and do this full-time? Younger entrepreneurs have an easier time saying yes due to a lower personal cost structure (no house or kids) and lower compensation to walk away from. They’re more able to take risks and rebound quickly.
2. Can you recruit a team? You may be willing to leave your full-time job but you have to convince others to do the same and that is hard. Most start-ups have a co-founder pair or small team on day one. If you can’t convince at least a co-founding team of your vision and your ability to execute, then do not pass go, you can’t collect $200 yet.
3. Can you raise money? There are several potential funding sources including your own bank account (risky unless you have a nice cushion), friends & family (major pressure to preserve their capital and your relationships), angel investors (can you convince people who you don’t know to give you their personal money?) and VC’s (can you convince savvy professional investors that hear dozens of pitches a week that you deserve a big chunk of money?).
4. Can you execute? Even after you answer the first three questions, running a start-up is really hard. You need to coordinate a team to successfully work together. You need to have a product vision that fits a market need. You have to build a product that fulfills that need. Your product has to work – good design, UI, feature set, technology, etc. And then you get to launch it.
5. Can you get traction? Oh man, if you thought the first four items were hard (and they are!), this is the hardest one. There are countless examples of good products that never reached a point of meaningful traction. There are tons of reasons for that failure – bad market timing, highly competitive landscape, too small of a market, no PR, no virality, no funds for marketing, etc. Some of these reasons should have been identified before you got this far while others are out of your control. That sucks. You take huge risks to get this far, you raise money, you hire a team, you build a decent product… and then it just doesn’t take off. As most seasoned entrepreneurs and investors already know, that story plays out everyday.
After this point, it’s a matter of next steps. Do you stick with it and try to address the issues blocking your success? Do you pivot? Do you raise more money to keep going? Do you try to exit (or shut down)?
When I talk to (potential) entrepreneurs and walk them through this line of thinking, usually 2 things happen – 1) they get inspired or 2) they get nervous. I think both are 100% legitimate responses. I would never want to discourage someone from following their dream – I have huge respect for that. But the path to achieve that dream is often tougher than expected. I think every entrepreneur should do an honest assessment of this list and have a high level of comfort that then can make it. If the confidence level is not high, then take the time to assess if this is the right move. Entrepreneurs should be optimistic but realistic too.
Thousands of new business ideas are tossed around Silicon Valley and beyond every year. VC’s and angels know that most of these ideas won’t work or are not fundable. Yet every year, there is a new crop of hot start-ups pursuing big ideas that could change the world, and that is why I live and work in Silicon Valley. Despite the tough odds, we continue to follow the dream. It’s worth pursuing, both as an entrepreneur and an investor. I love building companies, advising start-ups and bettering the start-up ecosystem. This shit is hard, but there is nothing I’d rather do!