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Formation of New Ventures (by topic)

Below is a summary of Formation of New Ventures, organized by topic, taught in winter 2017 by Scott Brady and George Foster.

Formation of New Ventures <-- see here for the notes below, sorted by class session

Contents

Entrepreneurship - Getting Started

General

  • Do it if you can say "I have a vision for the future that's different from the status quo AND I have a passion for it" (Scott Brady)
  • "There are few struck by lightning moments" (Scott Brady)
    • Don't let the lack of an idea deter you
    • It's a process, no one has a perfect idea
    • Trust your intuition and hypotheses
  • “Ask yourself: am I the best person in the world to do this job?” (Tristan Walker)
    • “Theres a critical difference between being an expert and being the best person” (Tristan Walker)
  • Good ideas —> bad; bad ideas —> good e.g. Airbnb (Tristan Walker)
  • What’s the first thing on your screen? What are you using that someone else isn’t? (Tristan Walker)
  • You don't need expertise; in TinyPrint's case, stationery is a learnable space (TinyPrint)
  • It's not for everyone, its a rewarding path, it's stressful, you need conviction in your idea, but you also need confidence that you'll be okay regardless (Scott Brady)

Search process modalities (Scott Brady)

  • (1) Teams that wanted to do something on their own
  • (2) Domain driven expertise model
  • (3) Regulatory change (Skybox, Gordon Biersch)
  • (4) Market disruption (contrarian view)
    • "If you're following someone else, you're too late"
  • (5) Or join an existing company

Team Formation

  • Pick people you admire (Scott Brady, Blue River)
    • Smartest people he knew
    • Orthogonal thinkers
    • Not beer buddies
    • And he likes them
  • Have everything in writing (TRX)
    • “Don’t be blinded by the glimmer of your own hope”
  • A talented group of people doesn’t equal a team (Scott Brady, Nebula)
    • You can have a world-class group of talent, but with questionable teamwork they fail
  • Choose people you've worked with before (Zola)
    • Reduces turmoil b/c of preexisting relationships
    • Fast track to speed
    • “I had resistance to new people until it was clear we could learn from them”
    • (Be careful hiring your friends - Ev Williams from another course)
  • Treat your equity base at the beginning as precious (Beth Cross, Lariat)
    • Vesting is good hygiene (Beth Cross, Lariat)
  • Unilateral rights are bad --> board instead (Skybox)
  • DATA: 2-3 founders are better than 1 (AngelList)

Fundraising

General

  • The key is to lower risk over time, and show it (Jorge Heraud, Blue River)
    • $$ to reach milestones, sequentially de-risking business (Jeff Crowe)
    • Questions to ask yourself: What do I need to learn? What needs to grow? Where are the bottlenecks? How much time and money do I need to learn? (Jeff Maggioncalda, Financial Engines)
    • Need to (1) stay alive (cash) and (2) be in the right spot to catch the wave (Jeff Maggioncalda, Financial Engines)
  • Not all funding is created equal (Beth Cross, Lariat)
    • The most fundamental decision you make is who you partner with (Jeff Crowe, Norwest Venture Partners)
    • The biggest mistake young entrepreneurs make is picking the firm, not the partner (Scott Brady)
    • VC's care deeply about who your other investors are (Jeff Crowe, Norwest Venture Partners)
    • Funding changes the course/trajectory of a company (Jeff Maggioncalda, Financial Engines)
    • They influence business decisions (trust, risk, consolidation) (Skybox)
    • Kholsa pushed Jorge and he liked that (Jorge Heraud, Blue River)
    • Khosla brand enabled Blue River them to get $$ and meetings they'd normally have no chance getting (Jorge Heraud, Blue River)
  • DATA: Firms that get the most $$ tend to be more successful (lightning rod) (AngelList)
    • Example (GetAround vs. Uber): GetAround had a better team and idea, but Uber had more $. Uber wasn't the first, but they executed better
  • Don’t get caught up in the highest valuation (Randy Hetrick, TRX)
    • It's not about the highest pre-money valuation (Skybox)
  • Helpful to have competition amongst investors (Jorge Heraud, Blue River)
  • Be patient
    • Power of "no" (say no to that first term sheet) (Skybox)
    • Cultivate relationships: You don't want to go through speed dating before you get married
  • Great entrepreneurs are great storytellers (Scott Brady)
  • VCs are great sources of feedback (Jeff Maggioncalda, Financial Engines)
  • Series A, what he looks for:
    • (1) CEO, founders - passion, domain knowledge, selling ability, business judgement
    • (2) Idea

Non-Profit Advice

  • Donors have influence (Laura Powers, Code2040)
  • The hardest thing to do in fundraising is maintaining the momentum (Laura Powers, Code2040)

Partnering with Strategics

  • BE CAREFUL - they'll learn a lot about your business --> they're less likely to overpay (Jorge Heraud, Blue River)

Bootstrapping

  • Upside: financial, status, freedom (strategy, milestones) (Laura Ching and Ed Han, TinyPrints)

Board of Directors

General

  • A board has two jobs: (1) act as a sounding board, (2) hiring/firing the CEO (Tristan Walker)
    • Importance of board —> they may have brought in the wrong CEO (Chris Kemp, Nebula)
  • “Especially during the party rounds, everyone assumes everyone is paying attention” (Scott Brady)

Having a Board / Not Having a Board

  • Tristan Walker didn’t have a board pre series A; benefits: avoid politics and still have advisors (Tristan Walker)
  • not having board = risk that the company won’t de-risk, answer fundamental responsibilities (Scott Brady)

Formation of Board

  • Formation of board → board = trust, motivation, connections, experience, perspectives (Tristan Walker)
  • you are married to your board members (Tristan Walker)
  • Be smart about initial decisions, otherwise you’ll have to crowbar someone off (Beth Cross, Lariat)
    • Vest over two years, two year contract, “no one will bat an eye” (Beth Cross, Lariat)

Managing a Board

  • As the CEO, don’t come to the meeting with half-baked ideas; discuss strategy with conviction; uncertainty happens outside (Tristan Walker)
    • “As the CEO, you don’t say I don’t know what to do...you can ignore the guidance, but you better be right...make the decision, be right, execute...most boards are unanimous” (Tristan Walker)
  • Formal fiduciary responsibility > advisory role (Tristan Walker)
  • If you listen to your board, you will get fired; if you don’t, you might get fired (Tristan Walker)
  • Amazing feedback: every board has to review the CEO (Tristan Walker)
  • Tristan has 2 rules for dealing with a board: (1) please ask questions and (2) call me out on any BS (Tristan Walker)
  • Send out the board package 48 hours in advance of the meeting (Tristan Walker)

Listening to the Customer

  • There's a balance between listening to the customer (given biases) and trusting your intuition (Will Dean, Tough Mudder)
  • There's a tension between addressing imminent customer needs and future anticipation (Chris Kemp, Nebula)
  • Ego got in the way of truly understanding what the customer wanted (Chris Kemp, Nebula)
  • Questions to ask yourself (Beth Cross, Lariat)
    • Ask yourself: do customers actually want this?
    • Unmet needs → how do customers know if they have them?
    • Pricing/elasticity → will they buy?

Product-Market Fit

  • “Product-market fit is when your brand is what others tell you it is” (Tristan Walker)
  • “Make sure your market wants it” (Chris Kemp, Nebula)
  • Are you delighting customers (Jeff Maggioncalda, Financial Engines)
  • You can't overcome bad product-market fit (Scott Brady)
  • Pick the market with the best fit, not the largest (Randy Hetrick, TRX)

People

Hiring

  • Great teams hire well (Scott Brady)
    • "Talent is the fabric that makes a great company" (Scott Brady)
  • Testing
    • Importance of testing (intellectual horsepower —> simple math test under time) (Beth Cross, Lariat)
    • 8-week induction period so people can drop out if they're not a good fit (Will Dean, Tough Mudder)
  • Job description, socialize with team, separate skills from situation (Scott Brady)
  • Software development: 1 world-class engineer is better than 10 average (Jeff Crowe, Norwest Venture Partners)
  • More people don't equate to speed (Randy Hetrick, TRX)
  • IPO changes the type of person (Jeff Jordan, OpenTable)

Culture

  • It's what you do when your boss isn't looking (Will Dean, Tough Mudder)
  • Don't end up with that moment where you're in an organization that's not yours (Scott Brady)
    • Brady experience: it's like a game of telephone, people were an echo of who we sent out to attract (Scott Brady)
  • Every successful company focuses on environment (Scott Brady)
  • "Culture eats strategy for breakfast" (Scott Brady)

Leadership

  • Think about doing the things only you can do when you’re trying to decide what to do (Randy Hetrick, TRX)
  • “Being a CEO is tough” (Tristan Walker)
  • You need a combination of rationalization and gut (Jeff Maggioncalda, Financial Engines)

Other

Rule of 3's: capital intensive businesses will cost 3x the time, money and people (Skybox)