Time to Quit Part II: When to Go All In on your Startup

Part II

This is the second part of our 7T framework. For Part I, check out the post here.

Truth: (A tracked metric that is an honest measurement of progress) 

One of the dangers of being a founder is drinking your own Kool Aid. Let’s face it, founding companies suck.

No, I mean it - you are constantly looking for more resources, you are underpaid, underappreciated, and underslept. Your customers tell you that you need to do better, your days are long, and success seems far away.

In those dark days, you need a light that keeps you going, and there is no brighter light than progress. Progress is motivating. Progress lets you know that there is only one step in this journey that matters: the next one. If you can see how far you have come, then you can imagine how far you will go. 

However, there is no way to do that unless you have an objective measurement of what success looks like. Think of this as a weight loss journey throughout which you need to weigh yourself Every. Single. Day. But you need to be looking at the progress over time. There will be ups and downs. Progress is not linear, but without the measurement, you won’t be able to see the trend line. Your investors are going to be backing that trend line above all else.

This might be revenue for your startup, but it likely isn’t granular enough to tell you a story. This can be cash in the bank, but honestly, you are in a good place as long as that’s going up. Money alone doesn’t tell you enough about strategy.

Think about conversion metrics. These metrics resemble some action divided by outcomes: clicks becoming customers, current customers willing to pay you more over ones that are leaving you, your customers leaving five-star reviews after you completed your jobs with them. 

I call this an alpha metric, a constant measure of truth that tells you whether your actions today are getting you closer to your goal or not. Use that to adjust course. One of your superpowers as a small company is your ability to move FAST. Unless you are constantly iterating, you are leaving money and progress on the table. 

Additional questions to explore on this topic are:

1. What are effective tools to keep track of your core metrics? 

2. What numbers matter universally, and what numbers are useless? 

3. How do you set up small experiments to demonstrate progress? 

4. Who “owns” this metric across your company? 

5. What is the right amount of progress with your alpha metric that tells you your idea is good enough to quit your job for? 

Target: (Thesis, a WHY, a purpose that you are willing to spend years working on) 

You should always have a goal that you are rallying towards. This includes your team (who you hire next), your customers (what they pay you for next), your product (what feature you build next) and obviously the metric you are tracking. 

However, you should also have a mission. A raison d'être, as the French put it: a reason to exist. A singular purpose that you are willing to devote your life to. 

I’m not talking about making a living and generating wealth, I’m talking about a reason to get out of bed in the morning. Something to care about, something greater than you that you can be a part of. A change that you want to see in the world. A wrong that needs to be righted. 

Great companies are founded by missionaries, not mercenaries. You will need a fanatical belief that you deserve to exist, against all odds. You won’t get there simply by wanting more money or fame. That’s just not authentic enough to get around.

This mission is your single most powerful recruiting, sales, and motivating tool. It’s the call to arms that attracts people who want you to be successful. It’s because of this mission that you will draw up the courage to steer out of the known path. 

This is an itch for change. This is an urge for progress. This is a calling towards a better future for people you care about. 

It’s different for every founder - the right company for you to start is completely different from mine, and that’s a wonderful thing. This is where startups get personal. What is a mission you are willing to devote your life to? The answer looks like a concept called founder/market fit. It’s the signal that out of all the people in the world, you were the one called to build your startup.

A lot can change over time–your tech, talent, customer profile, even cofounders come and go. However, what makes a company a company is the belief in the mission that everyone can circle around. This is essential, and deserves deep reflection before you make the leap to becoming an entrepreneur. 

Additional questions to explore:

1. What are exercises to define a company mission?

2. What is the difference you make in your customer’s lives as a result of your product? 

3. How can you create a narrative that ties together all of your efforts towards a mission statement?

4. What does a great mission statement look like? 

5. How can you define cultural values around your mission statement? 

Time: (Breathing room. Savings.)

You need money set aside that you can live on until your startup can start paying you. Ultimately a deadline in which you will quit unless you are successful.

You need a deadline. You need a time slot that you are willing to do anything in, but anything above that is self-destructive. Especially as you go later in life, startups can wreck everything you have built so far: your savings, your relationships, your health. 

You need to define what you are willing to bet before you start. Usually this is as simple as putting up a certain amount of money in savings, enough to live comfortably but not luxuriously. You start by making a personal budget and dividing your monthly needs with how long you can survive without progress. This gets way more complicated once you have others you need to take care of, such as children or aging parents with healthcare needs. 

This timeline can be extended indefinitely once your startup starts generating income; that’s why it’s so critical to reach revenue as fast as possible. You can use that same time window to raise money from investors, but it becomes so much easier to find investors once you have a growing list of customers. It's almost not worth it to waste your time doing anything but finding early signals of traction. 

You won’t be successful if you are worried about rent. Period. Once you run out of your savings, taking additional gigs or side hustles puts you into a negative feedback loop. Because you spend less time, you lose out on progress, and because you lose out on progress, your startup’s survival becomes even more difficult. This death spiral is best avoided with an honest conversation about resources and time.

This isn’t to be confused with timing - most great ideas don’t look like great ideas at the time. Perfect timing means early, so waiting for the right time is usually not a great strategy. This simply means having enough breathing room as you figure things out.

Of course, ideally your startup starts paying you from day one. This is why expert founders will likely work nights and weekends on their checklist before they make the entrepreneurial leap. It’s so much easier to switch ships when the second one is moving already. Ideally, your startup is able to start paying you survival money immediately because you have secured early adopters, a reasonable first product, and team members who are helping you get started. 

Remember that this isn’t meant to be a full replacement of your current income, or your potential income if you were to follow a professional commitment. Most startups end up paying their founders and early employees below market salaries for a while, and make up the difference with equity ownership. 

Being generous with how much time you need is super important, because when that time runs out, you need to change directions with your startup. That’s the ultimate signal that things aren’t working out, and it’s best to cut your losses early and move on to the next thing (part of the same startup or otherwise). Use this time constraint as an advantage. Deadlines move people, and there is no immediate deadline greater than covering your basic needs. 

Additional questions to explore:

1. What does it mean to be “ramen profitable” and why does it matter for your startup?

2. How do you put together a personal budget with basic needs that can stay consistent?

3. How much time should you give yourself until you start making “survival money”?

4. How do you justify this early investment you are making in yourself?

Trust: (Belief in yourself) 

After all of this scientific, measurable progress, here’s a totally unscientific faith that leads to success beyond your wildest dreams.

You need to trust that it’s all going to work out in the end. Startups are hard. This is going to be a bumpy ride, and in the early days, success will seem forever away. Don’t lose faith. It takes years–sometimes decades–to become an “overnight success.”

There are LOTS of things outside your control and comfort zone, and the one thing you can control is your attitude. Have the conviction that your success is a given–that the universe wants you to succeed in your mission. 

We never see the real struggle of successful entrepreneurs. Most of the journey isn’t glamorous. We all go through the dark days, the moments of doom, the feelings of loneliness and despair. It’s the great ones who face the struggle and continue with the journey who end up being successful in the end. 

As Ben Horowitz eloquently articulated, the struggle is what keeps you up at night. The struggle is the emptiness in your stomach when your hot shot hire quits. The struggle is when your champion customer asks for a refund. The struggle is the guilt you feel when you need to lay off half your company. All part of the journey, all part of the playing field.

All of the items in this list are elements that improve the odds, but you still need to play the hand that you are dealt. And no matter how great the hand is, it’s still a gamble to start a company. There is no shortcut to success, you need to grind to make this happen. You need to crawl through a mile of mud to come out the other side. You need to trust yourself that it’s all going to work out in the end. Without this, you won’t make it to the finish line.

At this point, there is only one question that matters:

1. Do you believe in yourself to win against all odds?

Time to Quit: When to Go All in on your Startup

This is Part I in a series.

It’s hard to know if/when you should quit your day-to-day responsibilities to go all in on your startup. Whether you are a student or an executive in a tech company, we all struggle with this core problem: Is my startup good enough to quit what I have now? Unfortunately, too many people YOLO into a startup and hope for the best, while others wait for the perfect moment to get started. 

The reality is that the only way to know is to do it - give it a try and see. However, there are things you can do WAY before you quit to even the odds and stack the deck in your favor. By making progress in these elements before your journey starts, you greatly level the playing field. 

I want to get something out of the way right from the start: raising dollars from venture investors is not a good first step if all you have is an idea. Unless you are a super seasoned operator, the risks are simply too great. You may have a shot at getting into an accelerator if you have subject matter expertise, but raising venture dollars is going to be a tough bet. In addition, if you aren’t all in on your idea, why should the investors be? Venture funds get to make a handful of investments per year, and a founder who isn’t committed to the idea is an easy pass.

Think of this as a checklist, the more you have completed, the more you are likely to secure investors who add value to your journey. Venture is a risky business because there are always folks who are willing to make earlier bets. In some cases, elements such as a superstar team are enough to get an investment, but the goal isn’t to raise a round–the goal is to build a solid business for the long term. (It goes without saying that the terms of your round will be significantly better if you have more from the list below.)

I came up with 7 T’s - elements that you should have in your back pocket. The first part of this post will dig deeper into the first three: Team, Tech, and Traction. The second part will discuss Truth, Target, Time, and Trust. Let’s dig in!

Team: (People: early employees, cofounders, mentors, investors, advisors)

You need to have supporters. Whether they are cofounders, mentors, early employees, initial investors, or an unofficial board, you need people in your corner. These are your allies–folks that want you to win with your idea. 

Starting something early is a team effort, and a team comes before the good idea. Talent is attracted to good ideas. If you think your idea is the next best thing since sliced bread, yet no one around you wants to join you, you should question that idea. Especially if you are surrounded by people smarter than you, you want their honest input in what you are doing.

Finding a cofounder seems like the first step, but that’s a HUGE commitment. Way before a cofounder, finding your allies helps you a great deal. They will push you to hone the idea, and it is way better to recruit someone from that group to be your cofounder, rather than hope that the first person you decide to work with is magically the best partner for your startup. 

For instance, if your startup is in the food space, you should try to find an already successful food entrepreneur in the industry, preferably with a few successful exits under their belt. Share your ideas with them, and ask for their guidance and support. They likely have made way more mistakes than you, and can give you concrete advice on what to do, and more importantly, what not to do. 

Their advice comes first, and if you find that useful, they will appreciate the relationship, too. It’s way easier to turn that person into an early investor or a powerful recruiting tool for their past team members.

At some point, you’ll need to start paying people. However, early on you need to be the missionary that gets others to believe. Find people who are as passionate as you are about the problem you are solving for your future customers.

Bottom line is this: it all starts with the people. You want to be part of an early cofounding team that shares this feeling: “Everyone in here is smarter than me. Everyone here is working harder than me. I need to step up to the plate to make sure I deliver.” Imagine if everyone on that team, in their respective fields, feels this way towards the others. This level of expertise feels like you are part of the avengers initiative. 

Ps. Honestly, if you have a solid enough team, that is more or less enough to get you started… certainly enough to raise a preseed round to get things off the ground.  

Here are some follow up questions worth exploring:

1. How do team members earn equity early on? How are you vesting it?

2. What are methods of receiving feedback with discipline?

3. What questions should you ask each other before committing to becoming cofounders?

4. How do you keep each other accountable, while respecting the boundaries of each other’s expertise? 

5. How do you handle compensation when you have no funding or revenue? 

6. How do you get someone to quit their job to join your startup? 

Tech: (Product, means of delivering value to your customers.)

A product doesn’t make a business, but there is no business without the product.

You need to have a product that serves your future customers! I use the word tech deliberately. It doesn’t have to be fancy tech - if you are starting a cookie business, your oven is your tech. However, you need to be able to deliver value, or at least have a clear path to delivering value with technology and a product you understand. 

The early version of your business should be able to deliver value without being fancy. Imagine making a painting tell a story, just by using stick figures. Imagine a melody, no more than a riff, waiting to become a song. This is critical, because no matter how much you plan, the moment your product hits the real world, it will need to change. It’s imperative that you get your idea out fast with a version that you aren’t proud of, just so that you can ask your customers about their experience. If you ask for them to pay, they will even be more honest. 

Finally, this also weeds out ideas that you have no clue about. I hate to break it to you, but if you have never been involved with a hardware project, it's probably not a good idea to build a cell phone as your first startup. Being an outsider to an industry or a market can be an asset, but having no clear plan on how long it’s going to take you to develop an idea (or how much it’s going to cost you) is wasteful. 

We can spend more time exploring the questions below: 

1. How do you build cheap prototypes (both in time and money) that validate key assumptions on your idea? 

2. What are effective ways to manage a technical team if you are a non-technical founder? 

3. How do you avoid problems downstream by making effective product decisions in the early days?

4. How can you use the “jobs to be done” framework to ensure your product is inevitable? 

5. When tech doesn’t work in the early versions of your product, how do you manage your early adopters? 

Traction: (Early customers that pay a fair price for the value they receive)

You have a team, and at least a theoretical path to making a real product. Now you need sales. Most people wait until they have a “real” version of their product before they talk to their customers. 

If there is one thing you take away from this post, it is this: There is nothing–and I mean nothing–more important than early sales to validate that you are onto an idea worth quitting your job for.

Whether it is a successful Kickstarter campaign, thousands in presales, folks signing up for pilots or early deployments, or hundreds of people on your waitlist waiting to sign up for your iOS app - you are onto something. First and foremost, it means that you will have a hungry group of incredibly motivated people willing to give you honest feedback.

This is invaluable because unlike your early customers, most people who want to support your startup will be nice to you. People you are already close to, people that love you, more often than not, aren’t amazing startup operators. I’m talking about your friends and family - it’s tempting to give feedback that lives on both ends of the spectrum. They are either:

• Overly protective and want you to never venture out of the safe path,

• Or they are overly supportive and want to give you a pat on the back, even when your idea is stupid. 

Early customers don’t care about your feelings - they simply want their job to be done. Think how bad they must need your product. They are willing to take a risk with an unproven founder and a brand they don’t recognize. The fact that they signed up is an amazing signal. They are telling you that they have an urgent need that they are willing to pay to meet.

If you fail on your promises to them (i.e., miss your deadlines, compromise on features, deliver a buggy experience), they will let you know, immediately and effectively. I’d rather listen to my early customers than anyone else to give me product guidance. 

There’s a clear art to how you do that. The old saying by Henry Ford is accurate: “If I asked people what they wanted, they would have said a faster horse.” (In effect, they would be right. A car is a faster horse after all.) I recommend the Jobs-To-Be-Done (JTBD) framework pioneered by Clay Christensen and Bob Moesta to interpret early customer feedback into a winning value proposition.

Above and beyond feedback, this is also your path to a salary. It’s way more reasonable to assume that your first paycheck from your new startup will come from a customer, instead of an investor. So work for it, and give yourself the flexibility that allows you to take a detour from the proven path. 

Finally, early customers show that whatever means you used to get them can likely get you more customers down the road. Whether you are going to grow with your profits or an investor who can fast track you for a price, you will need a credible story on where your next set of customers will come from. This means more cash to grow, and more feedback to make a better product - all good things. 

Here are other questions worth exploring as part of traction. 

1. How can you create a trusted partnership with your early customers?

2. How do you price your product for the first time? 

3. What are effective ways to get customer validation that aren’t measured in dollars? 

4. Who should lead your early sales efforts? 

5. What happens when your early adopters leave you? 

Stay tuned for Part II in this series to read the read of the 7T framework on when to go all in on your startup. What do you think of the first 3 considerations? Let us know in the comments.

MATH's Approach to Diversity, Equity, Inclusion and Belonging: Part 1 of 3

This post is Part 1 in a series on the ongoing DEIB journey we are undertaking as a venture capital firm. Make sure to read Parts 2 and 3 in the coming weeks to learn more about how we are tackling DEIB at MATH

MATH’s Approach to DEIB (Part 1 of 3)

At MATH, we believe in collective strength - the power of many voices with diverse backgrounds, experiences, skills and perspectives aligned to a shared vision. Like many in our industry, we have been talking for years about the need for more diversity in venture capital and in the startup/tech community. In 2020, we saw the entire ecosystem turn their focus to the Black Lives Matter movement specifically and Diversity, Equity, Inclusion and Belonging (DEIB) efforts generally. We saw a number of new funds focused on under-represented groups get launched and pledges from many established funds to do better. 

As we saw these initiatives get underway, MATH was publicly silent. I was by far the loudest voice on our team against any sort of pledge as I have seen too many people pledge to do better - swapping good intentions for meaningful action. I wanted us to be in a position to report what we have done, not what we were going to do. Multiple people in the industry questioned why we weren’t being more public at the time - even a few of our closest friends that fundamentally could not understand our position. 

What people could not see from the outside is that internally, we were having uncomfortable discussions about the lack of diversity on our own team and in our own portfolio. We asked tough questions about how our sourcing practices and deep networks were contributing to this challenge. We confronted each other directly about our conscious and unconscious biases. At the end of the day, we did not think it was appropriate to be talking the talk, without walking the walk. And, even through all these discussions, we were still unsure as to what to do. Every action we thought about taking seemed like it could create more damage than good or seemed too small and insignificant in the broader context. We were paralyzed. 

So, we started problem solving.

The purpose of sharing our journey now is to show one path for getting started - it is MATH’s path. It doesn’t mean it will be right for every fund. And, the one thing I know for sure is that we are making mistakes while also making some progress. We are learning and adapting, following our own advice to our portfolio companies. Here are the steps we took to get started:

Step One:  Getting Clear on the Why

First, we challenged ourselves on the why. The discussions ranged from “it’s the right thing to do” to “teams with diverse backgrounds outperform”.  We fundamentally believe both of those statements to be true. But, neither statement captures the true reason we believe any company focused on success should be thinking about DEIB. For us, the collective strength of the team around the table is the single biggest competitive advantage for a company. It is the collective team that designs and builds the product, talks to customers, and delivers an experience. That collective team needs to be diverse to push each other further, to reflect the world of the future. Getting this right is a competitive advantage for MATH and for our portfolio companies.

Step Two: Finding a Way To Organize Our Thoughts

To get us unstuck, I realized our team needed to build a framework for how to think about actions related to DEIB and we also needed a way to hold each other accountable. Personally, I was using the concepts of Circle of Control, Circle of Influence and Circle of Concern to keep my head clear in 2020 (something I picked up early in my career). We began to adapt these concepts for our DEIB Framework and came up with the following three categories:

MATH’s DEIB Framework

Step Three: Brainstorming All Possible Actions

With this simple framework in place, we created a matrix for each category (see Direct Control Example Below). We had three matrices - one for each category and with different areas of focus on the left side of the matrix. Brainstorming every action we could think of in each category was freeing. It didn’t mean we were going to take every action, instead it was an exercise that allowed us to see all the possibilities. We were thinking about the “what” not the “how”. We were thinking freely, not committing. This experience created a safe place to get all the thoughts down.

Matrix for Brainstorming DEIB Actions (in our Direct Control)

A note about the “B” of Belonging. MATH added Belonging to our definition and framework later - after much discussion and research. MATH’s take on Belonging is a bit different than the experts. We believe it is the part where different perspectives actually come together with a shared vision. Without it, you may have individuals all rowing in opposite directions. With it, everyone brings their whole self to the table, is safe doing so, but with the understanding that the team is working toward a higher, common goal and objective.

Step Four: Setting 2021 Priorities

Now came the hard part, what actions were we going to take in 2021. This step by far was where most of the discussion and debate happened on the team. Our team has a high degree of trust and we came to this discussion truly believing in one another’s positive intent. We listened and respected each other’s opinions. We were realistic about what we could accomplish in one year while also challenging each other to go further. This allowed productive conflict - something that is common in diverse teams with strong trust.

Handling the process this way allowed us to recognize both where we are currently and where we want to go.  It became a “Now, Next, Future” exercise that helped us immensely and allowed us to get unstuck.

Step Five: Take Action

Setting our intention was the spark that we needed to begin our journey. We made significant progress in each of the three categories in 2021.  Overall, I would give us a B+ for meeting our objectives last year. We increased diversity on our team, completed anti-bias training as a firm, established relationships with other diverse VCs and established more diverse sourcing practices. During diligence before funding a founding team, we started more formal conversations about DEIB and continued those conversations with portfolio company founders/CEOs following funding. We also established and funded a budget for sponsorship of organizations in our industry doing important work on these issues.

With all of our progress in 2021, by far the heaviest lift for our team was determining how to measure our progress in DEIB. Those that know the MATH brand know that we like to see quantitative metrics and trends over time. It was critical that we find a way to measure DEIB in a way that would not only give us data but would provide meaningful insight into how to impact change. We decided to work with Peoplism to build and administer a DEIB survey for our portfolio companies. We learned a lot. One quote from a founder who participated in the survey summed up his feedback like this:

“This was one of the most actionable and informative processes we have ever been part of! Thank you so much for this very important benchmarking. It will be great to see trends over time.” 

For 2022, we are continuing our journey. As part of that journey, I am going to be sharing two more posts about what we learned about designing and conducting the survey last year. Sharing our journey now is part of our 2022 priorities in the area of Indirect Influence. Our hope is that by sharing our journey, we can have a broader impact in the venture and tech ecosystem.

While progress is there, we have much more room for growth.

We would love to learn more about effective DEIB initiatives that you have been a part of as a founder or a VC. Sound off in the comments.

Follow @DanaWright_VC and @MATH_V_P to learn more about our work and process.

Posts to Come:

Elements of a Strong DEIB Survey (Part 2 of 3)

Five Key Lessons Learned from our 2021 DEIB Survey (Part 3 of 3)