January 23, 2012 marks the 6-year anniversary of my company WatchMojo. In today’s post, I’m taking a look back at six of the most essential lessons I’ve learned over the years, starting from the beginning.
Year 1 (2006) — Legal: Get Everything In Writing
There’s no such thing as true loyalty in business; instead, it’s all about mutual interests at a given time. Clichés aside, businesses have a mob mentality with employees and employees in turn have a mercenary outlook towards their employer. As such, when you decide to leave a company and start your own business: get everything in writing. When you announce your resignation and tell folks you want to start a business, they tend to be supportive. But once they see you actually launch it, their jealousy and pettiness comes to light.
I left with verbal promises that “we look forward to investing in your company” but was greeted with a lawsuit alleging I violated my non-compete (which I wasn’t). Thankfully I had other documents in writing and managed to win.
Lesson: Not just with legal matters, but sales, finance etc. – get things in writing no matter how awkward it might be to ask for it.
Year 2 (2007) — Financing
“And bad mistakes, I’ve made a few”
– We are the Champions, Queen
Reading TechCrunch, you’d think that every company under the sun has just raised millions in series A and is about to “change the world”. Reality is most companies don’t fit the VC’s profile to begin with, let alone actually raise capital.
I’ve already discussed how I’ve bootstrapped my company — initially because I didn’t have to raise capital, then because I tried to convince myself that I didn’t want to — only to refuse to accept what came with the territory when I came around, then simply not playing the game properly when the money was there.
So while as much as I love being master of my own domain, I also want to stress that VCs tend to get most excited about a company early on — when their imagination can run wild about a company’s future hockey stick growth curve prospects (no matter how foolish that may be).
Lesson: There’s a degree of “ageism discrimination” by VCs against companies that actually some operating history but don’t show the hockey stick curve growth in revenues.
Year 3 (2008) — Corporate Development
“The Only Rule Is That There Are No Rules”
Negotiating is tricky when you’re buying a $10 shirt at a flea market, but when you’re trying to sell a company for $10 million or $1 billion, it kinda gets trickier. Ultimately, however, companies are bought, not sold (I heard that from LUMA Partners’ Terence Kawaja, but that saying is as old as M&A).
Sometimes you need to sit back and wait for someone else to make the first offer, other times it’s best to throw out a figure to anchor the range. Sometimes it’s best to strike a commercial deal before holding out for the exit, other times giving away the milk (be it for free or not) ensures that no one pays for the cow.
Sometimes you need to run a process with as many bidders possible to create tension, other times that will alienate an interested party who’s a great fit and really wants to buy you.
Lesson: While the only rule is indeed that there are no rules, I think the overriding advice is 1) be a challenge and 2) make sure the demand vs. supply dynamics work to your favor, if you have ten competitors who can fill any need a buyer would have by buying you, you’re not going to get bought.
Year 4 (2009) – HR: Not Hiring Support
The best entrepreneurs and executives realize what their weaknesses are and hire or partner accordingly. However, sometimes it’s helpful to reinforce the functions where your strengths lie, too. When the company is small it’s easy for you to do it all as the jack of all trades, but when the company grows you’ll suddenly find yourselves stretched too thin. So while I’m not recommending you to have an entourage everywhere you go, don’t think that “bench support” only refers to staff in areas you’re weak at.
Lesson: If as the CEO of the company you’re also the chief bottle washer and cook, you will fail to address the true success drivers for economic growth.
Year 5 (2010) – Sales: Timing Monetization
In investing, the efficient-market hypothesis claims that financial prices always exhibit random walk behavior and thus cannot be predicted with consistency, and as such, market timing is impossible. We’ll debate that in a separate article.
Applying market timing to when a young company should hire its sales force, however, is just as challenging.
Lesson: Even if you’re flush with cash, hiring a sales force too soon will alienate good people who will be disappointed when they’re left to sell empty boxes. Conversely, hiring a sales force too late will prevent you from ramping up sales when your product is ready for the big time – regardless of whether you are selling advertising to marketers or software to enterprises.
Year 6 (2011) — Growth Vs. Profit
As much as we all strive to build sustainable and stand-alone companies, we’re living in a period of massive transformation and thus, consolidation and acquisition. As a result, many entrepreneurs build their businesses with potential acquirers in mind, choosing to grow at any cost instead of actually building a sustainable business that is solvent and profitable.
GRP VC Mark Suster (and occasional Techcrunch contributor) published an article on this theme
recently. The very short version of the post is: “Most companies (98+%) in the world (even tech startups) should be very profit focused. Being profitable allows you degrees of freedom you don’t have when you rely upon other people’s money.”
For 5 years I “grew the company at any cost” and year 6 I decided to focus on being profitable — or at least breaking-even.
Lesson: In hindsight, I probably should have focused on profitability a bit sooner, but better late than never.
Excerpt Image: From John Paul’s Aguiar’s Money Dummy