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Category: Management

3 Rules When Entrepreneurs Ask for Advice

Image by mars_discovery_district on Flickr

As your lifestyle and family structure change, it becomes harder to allocate good chunk of your time just for reading books or diving really deep into someone’s thoughts. Despite I’m also facing the same difficulties, there are 2 podcasts I listen to every week for the past few years.

Startups For the Rest Of Us and Mixergy, the former focusing on bootstrapped startups (the companies that are self-funded without taking outside money) and the latter focusing on VC funded startups (the companies that take outside money and aim for rapid growth), are the podcast I both listen to in order to keep myself balanced between two sides of startup worlds.

This blog post is a sort of in response to the latest episode from Startups For the Rest Of Us: “How to Deal With Haters” and talks about the rules when entrepreneurs ask for advice.

The entrepreneurs at early-state startups, especially those who are called “First Time Founders”, will seek advice from outside just about anything. It ranges from finance and product development to hiring (firing) and very personal stuff. From time to time, people called mentors and advisors show up in front of the entrepreneurs and they give whatever advices they are asked for.

Often, these people give you the advices that contradict each other. A decision about which advice you listen to and which advice you ignore is entirely up to you, but with understanding of general rules you can save you lots of time by identifying and filtering out irrelevant advices upfront.

The following 3 rules are only my opinions and other people may come up with their own version of rules. One thing I know for sure is these rules are very practical because they are the summary of looking back my career as an entrepreneur indicating which advice was in fact really effective to me and which wasn’t.

Rule #1: Do not take advices from people teaching you how Steve Jobs did

The mentors and advisors without any real entrepreneurial experience often say this. This type of people are referred as Academia, meaning they can only talk about experiences and achievements of someone else, not their own. They tell you how Apple and Steve Jobs accomplished certain things and use them as advices.

In tech scene, some mentors/advisors talk about the startups and trends in Silicon Valley to give a piece of advice to you, but such people often have no experience living in Bay Area, West Coast or even outside their country. The people who actually lived in such places know the same environment cannot be reproduced in their country so they don’t necessarily talk about it.

These “book smart” people gain their knowledge from web, books and information they get from other people. In contrast, the people who give advices from their experience are referred as “street smart” and the entrepreneurs should listen to these street smart people only.

The street smart people are also referred as “been there, done that” type of people, meaning they went though the series of experiences that first time founders would experience in the course of their entrepreneurial life. Sometimes I see the entrepreneurs taking all advices without doubt just because the people giving them advices are investors, but taking advices from the people with no entrepreneurial background is almost equivalent to leaning how to hit a home run from someone who never hold a baseball bat.

When you take an advice, be sure that you only listen to the people who have experienced what you are going through now. By the way, there are things called MBA case study and analyst as a job that blindly study and learn the past cases without experiencing anything at all, but they are completely different story.

Rule #2: Do not take advices from small thinkers

This is somewhat related to the above “been there, done that” type of people. Even if the advice is coming from the experienced people, it tends to be said from low and narrow perspective when they don’t have exit (IPO / M&A) experiences.

This applies to the amount of fund raising, whether you should start your business from your country first or go global right from the beginning, the growth speed of your company and so on. There are huge differences between the people with and without exit experience in terms of amount of experience and strength of mentality they have.

The bootstrapped startups that operate their companies using their own capital do not have to necessarily think big. Therefore, taking advices from the entrepreneurs who are running bootstrapped startups might not be relevant to you if you are running or planning to run VC funded startups. They are same entrepreneurs but with completely different directions.

From the point of view of the difference in scale, it might be inappropriate to ask for advice from the people in different industries. An example is to take advice from the entrepreneurs who are running Internet or software startups while you are running bio, life science or hardware startup.

Take a look at the amount of fund raising, for example. In their industry it typically rages from ten thousand to few hundred thousand dollars whereas in your industry it might be at least few million dollar for each round of fund raising. These two industries are so different that it requires you to come up with entirely different strategy and surround yourself with entirely different kind of people. It’s just a mistake to ask someone like that.

In the past blog post, I wrote about the interview of Tony Fadell, CEO of Nest, where he said “Hardware startup requires at least 7 to 10 millions of funding before it starts generating profit.” This is worth listening to it because he is coming from the industry and has exit experience. There is no point to listen to the people talking about the need of few hundred thousand dollar fund raising if you are doing a hardware startup.

On the other hand, whether to listen to the advices is not always true even if they come from the entrepreneurs who have exit experience. Perhaps, this is related with the skills of people giving advices. The entrepreneurs who have exit experience are looking at the next stage that is one step ahead of where they are. For example, the entrepreneurs who has done their IPO in smaller emerging stock exchange market are eyeing the chances to go into bigger established stock exchange market. If the advice comes from that level of perspective, there is nothing early-stage can do with that advice.

When it comes to mentoring, we have to keep in mind to give advice about the issues and problems that startup in front of you might face next. Otherwise, it won’t be a practical advice which startup can replicate later.

Rune #3: Keep distance from advices given by people with interest

When you take outside money from someone, that someone becomes a person with interest. However, it is not 100% true that you should always listen to his advice.

In particular, you should be very careful about the advice from prospective investors or people who are about to have interest in you. Because the advice from such kind of people are said for their own sake, not yours, you must examine the content of advice very well. It’s better to treat the advice from such kind of people as one of their playing cards or negotiating tactics.

Due to lack of experience the first time founders tend to jump right into the deals they are offered, but they must think twice about why they are given such offer and advice before closing the deals. This reflects the above first rule and you should spend more than enough time for listening to the advice from “been there, done that” type of people.

Furthermore, it is very common that even existing investors have different interests. Those who already took outside money from multiple VCs know it well. When you receive the advice from existing investor, the first thing you should say is “Thank you for your feedback. I will make a decision myself based on that feedback.” No string attached.

That’s all. At the end of the day it all comes down to how strong your mentality is and how hard you can believe in yourself. However, having the understanding of these basic rules will save you lots of time along the course of your entrepreneurial life.

Note: Above is my personal opinion and does not represent the opinion of VC which I belong to.

Don’t Be Fooled by TechCrunch

Ryuichi Nishida, a writer at TechCrunch Japan, published this great post (in Japanese) warning the domestic entrepreneurs about taking the words directly out of TechCrunch without understanding fondamental differences between Japan and Silicon Valley.

In his post he mentioned the below points often mistaken by the aspiring entrepreneurs so he gave thoughtful advises to them.

1) Far less acquisition activity in Japan (hence it is not a practical exit option.)
2) Convertible Notes should be treated as debt. They have greater benefits for investors, not for entrepreneurs in general.
3) No need to copy Silicon Valley businesses because you as a domestic entrepreneur don’t have to.

While I agree with all three points, I also saw countless number of domestic entrepreneurs in the past trying to apply the things that are only valid in the Valley. These entrepreneurs almost always have a great vision in the beginning just like ones in the Valley, but they will soon or later realize their businesses won’t go anywhere due to lack of available exits. This is particularly true if the business has no revenue stream.

In the Valley not all startups have revenue stream. Perhaps they still do successful exit mostly through acquisition by the larger business entities or sometimes by their direct/indirect competitors. I often brought up GroupMe as an example of recent startup which did very successful exit without making a dime in revenue. This kind of exit is only applicable to the startups based out of the Valley or by the acquirers based in the same area.

Now taking a look at our startup project Coworkify we are currently building the entire service in English. If we were to incorporate with some exit strategy in short period of time, we will choose the places other than Japan. Why? It’s because of the above points mentioned by Mr. Nishida.

Although we believe our service is unique and definitely needed by the certain amount of people, it doesn’t mean we can follow the same path as those startups in the Valley. If we want to do things like a Valley startup, we have to become a real Valley startup. Otherwise, what you read at TechCrunch has nothing to do with your startup.

Lastly, Mr. Nishida concluded his post by saying the domestic entrepreneurs should focus on the kind of services that solve a real problem instead of producing gourmet, fashion, social apps that already exist. Needless to say, we are focusing on the former.

5 Tips to Verify Your Idea

As a person who makes a decision on regular basis I always try to verify my idea whenever possible using various methods. Some people say that sharing your idea and getting feedback too early just makes it difficult to foresee the right direction. I totally agree with that, but just in case you have enough knowledges and experiences about the subject that you are going to make a decision.

Here are 5 tips I often use before making any decision. These tips are helpful but not always applicable since there are many situations where you have to make a decision without asking anyone. But knowing these tips sometimes saves you from going wrong direction and some of these tips weren’t simply available until recently.

1) Use Facebook poll feature

For example, we are currently conducting a poll on Facebook to decide new brand name for our prize winning project. To be more precise, we are letting people choose a domain name for our service. I wouldn’t say there is no risk involved with disclosing your potential domain names especially when they are not secured and not purchased by you. However, in return you will receive a fair amount of reactions from people in your social graph about what they think it should be. This kind of quick survey wasn’t possible few years ago.

2) Post a question on Quora

Quora used to be a tech related Q&A site but now it is used for wide range of topics and discussions. Some people use Quora just to get the answers to a specific question. Others use it as a marketing tool to see if there is any potential or interest in the audiences they are targeting. Again, sharing your thoughts in open space like Quora cannot be free from risks. But most often you will receive very insightful feedback from the knowledgeable people.

3) Run a contest on Prizes

Prizes is the website where you can create a contest and get ideas from people. The website was originally created by the Slide team, whose company under the same Slide was acquired by Google in 2010. People use Prizes to get the ideas about a brand name, a logo, and even a name for their newborn baby. Use of Prizes does not exactly verify your idea, but rather helps you gather more options for you to choose from. You could’ve achieve the same thing using Elance or oDesk by outsourcing it to someone else. However, Prizes made it easier.

4) Ask your advisors

Although I never happen to be a member of Y Combinator or 500 Startups, I heard that the first thing you as an entrepreneur participating those programs are asked is to close advisory round of investment. Advisory round of investment basically means finding the angel investors who have decent experiences in the same field you are conducting your business and having these people as advisory members in your startup by receiving relatively small amount of investment from them. These people are there to help you in many ways, and they are particularly helpful when shaping your idea. This is strongly recommended.

5) Ask your team members

This is the last but not least option you can take. Your team members are always willing to give you a thoughtful feedback about your idea even if none of them has the same amount of entrepreneurial experiences as you. Don’t underestimate the inputs from your team members because they are often considered as the most valuable users who are passionate about your service or product. I always listen to them whenever they have something to say.

That’s all. I understand some of them are fundamental to those experienced entrepreneurs. However, I have seen many aspiring entrepreneurs being afraid of putting their ideas in front of people and ended up with spending countless hours or days thinking alone. At the end of the day ideas are just ideas. Execution is what drives a startup. So don’t be afraid.

Importance of Securing Your Right Leg

When you build a startup, you think of a market where you will conduct business in the future.

Some entrepreneurs choose the existing market established by other companies and frequently it’s already a bit congested. Others choose to cultivate one by themselves so that there is no one else to compete, which I believe rarely the case especially for the Internet related businesses.

Whether you choose the existing market or not, you will have to find an entry point where you think your startup can outperform others from the beginning and later stick one of your legs there.

This leg is thought to be particularly important not just in the beginning but also when your startup decides to pivot years later if not months. Without securing a leg, there is a good change that the startup will fall when it actually tries to pivot. This often means leaving the entire users, lack of tractions, or simply a company going nowhere.

I’ve seen many entrepreneurs ended up with this situation and I know from my experience this is the case to many startups that could not survive. If your both legs are detached from the ground, anything you do is pretty much same as pushing a yarn in the air. You will get no reaction regardless of what you do.

This is why identifying the right entry point is very crucial to all startups because that entry point eventually becomes the place where you will decide to stick your right leg later. Many entrepreneurs tend to follow the market established by some pioneer companies and they soon find out there is no place left to secure their leg. Photo sharing, social commerce, all sorts of social games are good examples these days.

I don’t mean following trend is necessarily a bad thing. But it becomes difficult to find the right entry point if you follow it. My advise is as discussed earlier to focus on actual needs but not just problems. And you have to be super passionate about the problem you are trying to solve. I believe this is the only way for aspiring entrepreneurs to find the right entry point that leads to securing their leg.

Problems Are Not Equal to Needs

So luckily enough, our team won the final prize at Startup Weekend Kyoto.

As a part of preparation to our future steps I decided to quickly summarize what caused us to stand out from others.

While it’s reasonable to say turning paper into product is one of the most important aspects as this article on Financial Post points out and we’ve executed it correctly, I would say it’s because we focused on needs rather than problems.

What are the differences? Aren’t they always equal? Unfortunately, they are not, at least in my opinion.

Most of entrepreneurs come up with the solution to the problem they think it needs to be solved. But only a few provide a product that people really need or cannot live without. For the record, I used to be one of those folks in the former, not in the latter.

Let’s take an example of iPhone app which tells your friends a direction to the restaurant where you and your friends will meet up. Although it’s possible to do the same thing by using Google Map or Yelp, this app makes it super easy by having people only require to click on a “I’m here” button and select friends from Facebook or Twitter. The app does the rest.

Sounds good, right? This idea was actually given by one of the students whom I’m tutoring for the past few weeks. Is this a problem that needs to be solved? The answer is yes, especially to people who don’t know how to copy & paste the address of restaurant into Google Map and email the given direction to friends. But the question is how often do people use it?

This is where we start noticing the difference between problems and needs. While it is perfectly true this student found the problem that needs to be solved, he didn’t quite estimate the amount of needs people with this problem are having. If the amount of needs is below a certain volume, there aren’t any users nor potential merket to monetize with.

I had this idea before Startup Weekend event and I even verified my idea by talking to few people having the exact problem which I think it needs to be solved in order to make sure there is enough amount of needs. Yes, we had to pivot a little during 54 hours but we kept focusing on the original need that eventually led us to the grand prize.

So the suggestion here is:

1) Find a problem that needs to be solved.
2) Estimate the amount of needs.
3) See if you still want to do that.

We’ll also repeatedly execute above process in the future. Once we find what we are doing is not aiming at enough amount of needs, there is only one thing we can possibly do. We’ll pivot.

Appearance on Revision3

Jay Adelson’s Ask Jay is one of my favorite shows on the Internet. Few days ago I posted a question to his show, which I always had in my mind, and guess what? He picked it.

I would like to say huge thanks to Jay and his crew. Hope he will visit Japan someday so that I can meet him.

Here is the episode in question.

http://revision3.com/askjay/generatingbuzz