What’s your startup’s superpower?

The sky is falling in the venture financing market!  Warnings, exhortations and admonitions are being written and spoken everywhere.  A market in which capital was abundant is now increasingly constrained.  So what’s a startup to do?  The reality is that you probably shouldn’t change anything about your business if you’ve been running it rationally.  Capital is really only a tool at the early stages.  Capital enables you to exist, it doesn’t enable you to win.  More important than ever is being able to answer one question.  What are you going to be the best in the world at doing?  Answering that question will help your company focus on unlocking its superpower, the skill or asset that truly sets it apart in the market.  And that will allow you to survive, and even thrive, in any fundraising environment.   As a VC, I see a large number of
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Busy, but not productive

The founders we meet each month are always passionate, ambitious and determined.  And they’re always working like mad.  But too often, especially as of late, I find that they’re making little to no progress despite their endless work.  This isn’t because their ideas are bad, their teams are weak or they’re capital constrained.  It’s because they’ve fallen into the trap of being busy, but not productive.          It’s so easy as a startup to spend your hours building, selling, recruiting, etc.  You always want to be doing something.  What startup founder doesn’t say that he or she is “really busy” when asked how they’re doing?  Because if you’re doing something, you’re surely making progress, right?  Unfortunately, not really.  Progress at a startup is ultimately measured not by hours but by risk.  In the early days of a company, everything is uncertain and the risk is extraordinary.  Progress is made by
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The two goals of startup fundraising

Money’s been flowing. VCs have been investing money at levels not seen since the bubble year of 2000. Entrepreneurs have been raising enormous amounts of money at valuations that assume years of future growth and eventual profitability. So what’s the downside of all this? That entrepreneurs mistake what they’re reading on Techcrunch as the reality for their own companies both now and for the foreseeable future. Raising money seems like a cakewalk, but that’s only because you don’t read about the failed financings, down rounds and recaps nearly as much as the unicorns and decacorns. And warning signs are emerging that the cascade of cash is about to end. The reality may be very different soon, and that’s something that we’ve emphasized to our Homebrew partner companies as they’ve hit the fundraising trail this year. Fundraising is confusing, frustrating and all-consuming at its worst and informative, exciting and rewarding at
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Startups are hard. Don’t go it alone.

I suppose I shouldn’t be surprised that with the continuous growth in the number of startups (we’re seeing between 150 and 200 new seed opportunities per month at Homebrew), we’re also seeing a related trend in the growing number of companies being started by solo founders.  I’ve taken a particular interest in this because Hunter and I have a strong bias against investing in solo founders (although we have done it once so far).  This clear shift in the market caused me to reflect on why we prefer founding teams over founding individuals.  In fact, we prefer teams that have known each for a long time and ideally have worked together before.  While solo founders can absolutely build great companies, I think we’re right that having a founding team materially increases the chances for success.  Building a great company is hard enough.  It’s even harder to do it alone.  In

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Successful startups say “no”

“The difference between successful people and very successful people is that very successful people say “no” to almost everything.” – Warren Buffett

We’ve been spending the past few weeks at Homebrew helping several of our portfolio companies work through their planning for 2015.  It’s no surprise that during these conversations incredible ideas for new products and features, partnerships, revenue streams, technologies, etc., emerge.  So we and our founders all remind ourselves about the value of doing just one thing (or a very small number of things) exceptionally well.

Often times it’s easier for companies to choose to do lots of different things.  New initiatives are fun and energizing and get lots of attention while the effort required be truly exceptional at one thing can be an exhausting grind.  But being adequate at lots of things almost always comes at the expense of being excellent at the most important thing.  Great companies are born of focused excellence.  Google was the best at search before it expanded into new product areas and markets.  Facebook was a powerful social network before venturing into mobile communications and virtual reality.  Narrowing from lots of good ideas to just the most critical ones is the lifeblood of a successful company.  We constantly remind our teams that startups rarely die from lack of ambition, only from a lack of focus.  And we insist that there’s incredible power in saying “No” to the things that distract them from being best in the world at whatever they are doing.

So what are examples of  things that startups should be saying “No” to so they can focus on what really matters?

  • Settling for the good enough hire: It’s tempting to fill the hole on the team that seems like the obstacle to progress.  But hiring people with enough aptitude but the wrong attitude is guaranteed to impede and even reverse progress in the long run.  These kinds of early hiring mistakes can cripple a company.
  • Building new products or more features: There’s that one customer that is willing to pay a lot for just one new feature.  Or if you just add this small feature that will solve your user growth problem.  Or you’ve got early customers that love your product so you want to give them more to love before growing the customer base.  Do any of these help you deliver the simplest offering for the core use case you’ve identified?  Are you sure that you’re not iterating toward a local maximum versus placing a bet that might unearth a global maximum?
  • Short term revenue: Revenue can be found in lots of places, such as consulting contracts, project development work, one-time ad sponsorships, etc. But does generating revenue in an ad hoc way help you build a business that will scale and be sustainable?  Is the revenue you’re generating the income stream you want to bet on long term?

What We’re Curious About at Homebrew…

Every day we meet amazing founders sharing their ideas for how the future will evolve. In fact, we see about 150 new companies each month. Where do these teams originate from? Roughly 65% are referred to us by other founders or people we know. 25% are introductions via investors – either angels or VCs. The remaining 10% are a combination of cold inbound/outbound sourcing, often based upon a specific area we’re investigating. So recently we asked ourselves a question “is there strategic value in keeping our list of interests to ourselves?” That didn’t seem like a very good idea if our goal is to connect with thoughtful founders or inspire conversation. And thus http://bit.ly/HomebrewWhatIfs

What Ifs will be an dynamic list of ideas, questions and technologies that we are curious about and specifically want to connect with entrepreneurs to discuss and learn. We’ll edit, add and remove items as appropriate and link to our longer blog posts when it makes sense.

If you’re a founder in one of these areas or someone with domain expertise, we hope you’ll reach out. Do we hope to find new investments this way? Sure, but we’re also happy to just learn and hopefully help.