5 myths to avoid on the 1st leg of your entrepreneurship journey
There is a path to entrepreneurship promoted in Hollywood and there is a path for the rest of us. The former celebrates risk, the latter avoids it. My story is about the safe path.
I am the CEO of WhereTo, an enterprise travel platform used by some of the world’s largest companies. We had raised $10M from top-tier investors before our recent acquisition by Flight Centre, a large global travel agency.
Common sense would say I’m the wrong guy for the job.
When I founded the company just over four years ago, I had zero technical experience, knew no investors, and had never managed anybody. Rather than coming from the travel industry, I was a business litigator. I grew up faaar from Silicon Valley — in the town of Woodstock, New York, where my hippy parents owned a used Celtic bookstore.
How did somebody with my background build a tech company? For one thing, I narrowly avoided (or in some cases survived) five pitfalls that I believe commonly preclude the majority of us from making their dream a reality.
Founders from outside a tech-ecosystem are surrounded by bad advice, since building a startup is different from other kinds of businesses. Those myths are: (1) Don’t share your idea; (2) Good ideas must be bulletproof; (3) Startups require your total commitment; (4) Live on a shoestring; and, (5) Stick to what you know.
I found that the opposite is true. Let’s dive in.
(1) Don’t hoard your idea, share it freely
The 2010 drama, the Social Network, depicted every entrepreneur’s worst fears. In the famous story, the Zuck steals the Winkelevoss twins’ idea for Facebook, bending the course of history forever.
In most cases, sharing your idea is far more likely to lead to the launch of your company than the theft of it.
My journey to building my own modest tech company also began with an idea I had in college: Why can’t you search for travel by your budget? With a love for visiting new places and only student loans for financing, I always wanted to know which destinations were affordable. At the time, the only option was to manually search one destination at a time to see if the flight and hotel prices were less than my savings.
Against the advice of my law-school friends (who had seen the Social Network), I shared the idea with anybody who would listen. Not relevant listeners, like VCs, but the captive audience of my network, like Uber drivers. I was vaguely searching for capital and didn’t even know what a deck was.
Finally, ten years later, the 500th casual listener opened his wallet. I shared my idea for a budget based search engine with the managing partner of my law firm. He agreed on the spot to provide the seed capital to build WhereFor (the predecessor to WhereTo). The universe must have been tired of hearing my pitch.
The moral of the story is tell everybody your idea and don’t bother with NDAs. Each person is much more likely to provide help than quit their job to steal your quirky idea. Search LinkedIn for experts who work in the right industry (or even competitive companies) and offer them advisory positions. Execution will soon be the hardest part and you’ll need plenty of help.
PS: Rather than just telling people your idea, build a pitch deck (more on that under point 5 below).
(2) Don’t wait for a bulletproof idea
Why did it take a decade to raise our first dollar? Because I listened too much to friendly criticism.
I stopped thinking about my idea for a year after a friend from the recruitment space showed me on AngelList how many VC-backed founders graduated from Stanford or Harvard. I lost another year when a friend from the travel industry noted the high user acquisition costs in travel. Especially deflating was when I learned that somebody had tried it before. Each credible piece of criticism buried my will to get serious with another inch of dirt.
The mistake I made was in my medium of exploration — casual conversation. Asking people for feedback on an idea is asking them to point out the obstacles. The more people you ask the more problems you’ll discover.
What I wish I knew then were the workarounds we eventually found for each of these legitimate concerns. I raised our initial capital from an angel investor outside of Silicon Valley where pedigree matters less, acquired our first million users for free by sneaking into a nightclub, and pivoted around a fundamental product issue (both of which are explored in a later article).
At the idea stage of a company, roadblocks are vivid while the detours are unknown.
That said, not all ideas are good, so how do you know whether your idea is worth your effort?
The answer is…
(3) Don’t quit your job, test your idea like a science project
Armed with the confidence of $50,000 in a business bank account and a partner who believed in our mission, I set about testing our most fundamental question: Did people actually want to search for travel based on their budget?
Without the money to build out my idea into a real search engine, I hired web developers to build a fake. Users input their budget and were required to give up their email address to see their search results. Instead, they got a page that thanked them for signing up and let them know that they would be notified when the product was actually built.
Next, I spent a grand on facebook banner adds to drive traffic and determine our approximate user acquisition costs. The banner ads had an abnormally high conversion rate and were the highest not just among college students like we anticipated but minorities (particularly Black and Hispanic people) of all ages.
Boom. For only a few thousand dollars, we had hundreds of signups, a sense of our target audience, and most importantly, validation. I used this information to interest television personality and entrepreneur Rob Dyrdek (who my partner/former boss met by…telling everybody the idea) who wrote our first sizable check.
Only when I had proof of actual demand and enough investment capital did I depart from my law firm to build WhereFor (and eventually WhereTo). Until that day I made my full billable hours requirements and worked extra hard to show the partners in my law firm that my side hustle wasn’t a liability.
I learned about this iterative approach to testing and building a minimal viable product (“MVP”) in the Lean Startup, a preeminent instruction manual that I believe should be the first book any startup founder reads.
(4) You don’t have to subsist off ramen, set the salary you need
The classic Silicon Valley story is of a founder who drops out of an elite college or career and draws minimum wage until their big exit. I suspect that many of these daring trapeze artists fly above a parental safety net. Either way, this route was never for me.
With $190k of student loans and living in Los Angeles, earning under six figures was not an option. Accordingly, when I started WhereFor full time, I paid myself slightly less than what I made as a junior associate. I wasn’t balling but I also wasn’t starving (or collecting debt).
While it is outside the stoicism preached in the Valley, my upper middle class salary was never an issue. Only one time did a prospective investor bring it up, and I respectfully explained why it wasn’t negotiable. It was a necessary cost of doing business. The key is to be honest and firm.
In the big picture, a founder’s reasonable salary is a nominal part of an early stage tech company’s budget. Growing revenue or adoption is more meaningful.
But to be clear, this only applies if you’ve raised enough money for a one year runway. If not, then, as I I suggest above, you should keep your day job until that happens.
Note: I mean no offense to real ramen which is delicious.
(5) You don’t need to code, but you must tell a bad ass story
How do you build a tech company when you don’t know to code? I am certainly not alone. AirBnB, Apple, Tinder, and Pandora were built by non-technical founders.
The method is best described in a Medieval fable.
A hungry traveler approaches a poor village searching for a meal. Rather than beg, the traveler drops a rock in a pot of water and offers a bowl of “ Stone Soup” to a villager in exchange for one ingredient. Skeptical but seeing no harm in trading a spare vegetable for soup, the homeowner adds a carrot and places the pot on his fireplace to warm. The sweet smell entices a curious neighbor who offers a scallion for a bowl. The aroma attracts more and more villagers, until the pot is brimming with potatoes and meat. After everybody feasts, the traveler removes the stone and heads to the next village.
This 500+ year old tale designed to promote sharing reveals the soul of entrepreneurship. I did not know how to code, market, or hire, but I had a vision and strategy compelling enough to entice the people who could, and offered them equity in our results. With each new person or resource, our valuation grew and made it easier to attract more qualified people and assets. Building value gets easier over time.
Practically speaking, your first job is to develop your story in an investor deck. In its 5–15 pages, you must show how a bunch of ingredients that you don’t yet have will enrich the investors and employees who will contribute them. And you must demonstrate the credibility that you can pull it off, which you can prove through analogous achievements (or if like me at the time, and you don’t have that, just a clear well researched presentation). Medium is filled with winning templates.
A cynic might call it vaporware — selling what you don’t have — but fortunately they are not your target audience. Early stage investors are inherently looking for visionaries. Spend your time trying to find them rather than trying to convince cynics. When you find them, be brutally honest about what ingredients you lack and outline a thoughtful plan to get them.
Once you close your seed capital and then your team of experts, your next challenge as will be to manage them effectively, which I discuss later. Unlike the Stone Soup peddler, you won’t have the luxury of just taking your magic stone to the next village once the ingredients come in.
Telling a story that rallies talented people around your mission isn’t easy, but it’s probably easier than learning how to code.
Summary — a method for the rest of us
If you have an idea you love, talk about it freely to find your capital and supporters. When you hit criticism, note it, but realize that there are often unseen solutions. Test some version of your idea to gain validated feedback. Don’t quit your job until you can draw a salary that supports you. Finally, you don’t need to have experience in the subject of your idea — focus instead on filling in your gaps.
Good luck and enjoy the journey!