Lucas Carlson's Blog, page 9

How do I manage my anger after pitching VCs?

Dear Lucas…

I have never raised money before and I don’t know how anybody remains sane after pitching venture capitalists. I just finished my first round of bay area pitches… and it sucked. I had to tell the same story a half dozen times a day and I never knew how well I was doing. Sometimes the person I was with seemed engaged and asked a lot of questions, other times they would check their blackberry midway through my pitch.You would think that the engaged VCs were interested, but afterwards what they said was a total crapshoot. Some told me “It’s too early, but we’re very interested and we should stay in touch.” A couple told me flat out that they were not interested. One wasn’t sure about the market and needed to do more research to get comfortable.

The last VC I talked to seemed the most interested and said he was going to talk to his partners the next week and get back to me, but I haven’t heard anything and it has been three days. Meanwhile, the guy who’s blackberry was apparently more interesting than me reached back out. Apparently he talked to a friend and has changed his mind about the opportunity and wants me to come to a partner meeting next week.

Why won’t VCs just tell me what they think? Why do they lie to me? I hate pitching, why do VCs make me do it? Should I just try for angel investment?

—Dazed and Confused

Hi Dazed and Confused,

Raising venture capital is hard. Especially at first, it can feel like fishing backwards and blindfolded with handcuffs and without a fishing pole. But remember who decided to walk into this casino and sit down at the slot machine. You may not make the rules, but if you win, you probably won’t be complaining too much.

First, a few general rules of thumb. You never know how you are doing while you are pitching or just after. The only way to judge how well it went is by how much followup there is the next week. If there are clear next steps a week after the pitch, that is a good sign. If not, then it usually ends as a pass. The other general rule is that the VC who you think liked you most is rarely going to be the one that ends up investing. They are usually the first ones to ask for a followup. They get hot and heavy, and then flame away. Slow but steady burners are more likely going to make it to the finish line with you.

Even though raising capital is hard, many first time pitchers haven’t thought through how hard it is to be a venture capitalist either. I wouldn’t know first hand, but I can imagine. One of my favorite VCs, Frank Artale, has been a venture capitalist for almost three years. You can imagine how many startup pitches Frank listens to—at least four days a week packed with them. Let’s guess around 8-10 pitches a day. That is around 5,616 pitches total. And out of those, he is currently is on only 10 boards. 1/10 of a percent.

Frank Artale has had to say no at least 5,606 times in the last 3 years.

And Frank has other partners that he has to convince even after he is convinced himself. Could he make up a story to tell an entrepreneur that his partners were not convinced instead of just saying no? Yes. But is it more likely that his partners just weren’t convinced? Knowing Frank’s integrity, absolutely. Could Tim Porter from Madrona say “It’s too early, but we’re very interested and we should stay in touch” when he really meant no? Yes. But is it more likely that you are really too early for his investment and that he really does want to hear from you in the future? Knowing Tim’s honesty, absolutely.

Rejection is difficult to swallow. Sometimes it feels even worse to be in limbo; you just want to be put out of your mysery. Sometimes you can’t stand it anymore. But remember that VCs literally have to say no or pass on 99.9% of the deals they see. That doesn’t mean they don’t like you. It doesn’t mean they don’t want to hear from you in the future. It doesn’t mean they may not invest in you in the future. Don’t bite the hand that feeds you, they never forced you to try to raise capital.

This process may be hard, but it is the most efficient way the market has figured out to fund innovative ideas. It may not feel efficient, but every experience you have is there for a reason. Everything you hear (or don’t hear) from a VC may not be the whole story, but is the way it has to happen in a system where tens of thousands of people think they have good ideas and only a small percent of them can ever actually get funded.

—Lucas

How Do I Cope With Startup Envy?

Dear Lucas…

My startup recently failed. I was the CEO, and it was in a super-hot space with three other competitors. Two of the competitors were acquired and the founders in both companies became super-wealthy. I checked out their LinkedIn profiles and for most of the founders, it was their first startup.With only two startups left, our other competitor’s growth stalled while ours went through the roof. We were way in the lead until we tried to raise our next round of funding. The VCs did not want to invest any more money. We tried laying people off, but in our frenzy to grow quickly, we ran out of money and had to shut down.

Meanwhile, the stalled competitor had scaled down operations earlier than us, which naturally gave them more runway. They ended up pivoting into a tangential space where they (accidentally?) hit on a big new hot trend. Almost a year after they scaled back, they were now raised a round of funding at a huge valuation.

Should we have done something differently? How did I screw it up when I was ahead? I can’t get over the feeling like none of it is fair. I get the feeling that other people keep winning big all around me, except for me. Do you have any advice that can help me?

—Almost Famous

 

Hi Almost Famous,

Your story is so common that it has been told for thousands of years and countless ways. It is straight out of Taoist mythology. Here is how I usually modernize it.

A father has a son. Everyone congratulates him and says “What great news!”The father responds: “Maybe.” The son grows up and breaks his arm in baseball. Everyone says: “What bad news the broken arm is!” The father responds: “Maybe.” A war breaks out and the military rejects his son due to the arm injuries. Everyone says: “What good news the broken arm was!” The father responds: “Maybe.” The son goes off to war anyhow. Everyone says:“What bad news your son went off to war.” The father responds: “Maybe.” The son is part of the platoon that kills the dictator. Everyone says: “What good news your son went off to war.” The father responds: “Maybe.”

I think that I will use your version of the Taoist myth instead now, because it illustrates the same structure but using terms I love.

An entrepreneur starts a company and gets millions in venture capital. Everyone congratulates him and says “What great news about starting a company!” The entrepreneur responds: “Maybe.” The company’s growth stalls. Everyone says: “What bad news about your growth!” The entrepreneur responds: “Maybe.” A bunch of companies in the same space are acquired. Everyone says: “What good news about the acquisitions!” The entrepreneur responds: “Maybe.” The company lays everyone off to extend runway. Everyone says: “What bad news about layoffs.” The entrepreneur responds:“Maybe.” The company pivots and raises a mega-round of funding. Everyone says: “What good news about the funding!” The entrepreneur responds:“Maybe.” The company runs out of money and shuts down. Everyone says:“What bad news about starting that company!” The entrepreneur responds:“Maybe.”

“What could have been” haunts us only when we forget that “what will be” alone can illustrate the full depth and measure of “what is”.

Are you going to let yourself be defined by what could have been?

Or are you going to appreciate the here and now, and create what can be?

“Character consists of what you do on the third and fourth tries.” ― James A. Michener

I can hear your response already: “but so-and-so didn’t have to wait for their third and fourth tries.” Then so-and-so is the one you should pity, not yourself.

It is your turn to build character this time instead of hording money. Relish it. Treasure it. Learn to appreciate it and be grateful for this opportunity. Your failure is your accomplishment, wear it proudly. Your failures build character like tearing muscles builds scar tissue. It makes you fucking buff.

Nobody can build character for you. Think of your heroes. Are they people full of character? Guess how they got it. Was it by obsessing on what could have been? The experiences you are having right now are irreplaceable and precious and rare.

Fortunes come and go. Building startups is a long game. It is not long on money. You might win money in one startup, then invest it all and lose it the next startup. Startups are long on character. This is the dirty little secret nobody tells you up front: the spoils go to those left standing.

—Lucas

@cardmagic

Do I Need Venture Capital?

Dear Lucas…

I want to get your opinion on my product, and some strategic advice if possible. Reading the lean start-up and watching countless videos, entrepreneurs always say it is easier to raise money before launching and I wanted your thoughts on that.

I think raising money is a huge factor for whether I have a chance or not. What I’m trying to create here is huge and not a simple task, I certainly believe I need a team and it’s extremely difficult and challenging to go at this alone. There are companies I look at which have attempted to do something in the space and they received funding for a very poor product and strategy. Another company just raised another $60 million also had a seed investment prior to being on the market.

I’ll provide you with a download link tomorrow to test my product and hopefully give me some feedback as well.

— Painfully Green

 

Dear Painfully Green,

You are wrong. Raising money is not a huge factor in whether you have a chance or not. If you think that is the case, you already have no chance. If you don’t believe you can start building a business without raising money, then you don’t really believe in yourself.

Stop comparing yourself to others. Stop saying that other companies are so bad and it should be so easy to do something better. Those companies are in a very different part of building a business than you are.

You are at the start. Stop acting like you deserve funding because those companies got funding. You are comparing apples and oranges. Go prove to the world that you deserve funding because you can build something better that more people want and find value in.

Investors don’t say to themselves: “Well if only some smart dude came by my desk promising me he could build yet another clone of a successful startup, I would fund him tomorrow” That is a myth. Never happens. Ever.

They evaluate you. They evaluate your business model. You think you know your competitors business model, but you don’t. Have you seen their pitch deck? Do you know their real growth and revenue figures? Don’t pretend like you do if you haven’t. Stop obsessing over the fact that others have come before you.

Go read Richard Branson’s “Losing My Virginity”… Richard Branson didn’t raise money for years and he built one of the largest businesses and brands in the world. Go read Felix Dennis’s “The Narrow Road”, Felix founded Maxim magazine and didn’t raise money by selling equity. Felix owned 100% of Maxim magazine when he sold it for $240M.

Go build a business. Fundraising is not holding you back. You are holding you back. You shouldn’t raise money until you understand that. Go create value. Don’t take short cuts. If you believe in yourself, you don’t need to take short cuts. Do it right. Do it well. This is not supposed to be easy.

—Lucas

4 Transcendent Startup Tips From Penn and Teller

Three years ago, I was just a programmer. I had made a name for myself as a programmer, having written a 900 page book on Ruby, a few popular Ruby gems, and built several successful startups like Mog.com from the ground up. Then something changed in me. I transformed into a startup founder, creating AppFog.com which was acquired by CenturyLink this year. But sometimes I still wonder if I should have been a magician.

My hacker handle is cardmagic. In 1996, I was 13 years old and in love with magic. I practiced every day for hours and would show my friends every new trick I learned. Middle school kids are super impressed by this kind of thing, I felt special and appreciated whenever I showed them something amazing.

But when I got to high school, kids would try to guess the secret, even when they had no clue how it was done. But they guessed anyhow, they did not enjoy magic any more, they didn’t want to be fooled. I felt very self-concious and stopped practicing magic for a newer hobby I also picked up in middle school.

But this story stays in 1996, when magic was still cool. One brisk autumn day at the beginning of the day before classes started, I experienced a totally mystifying trick first hand. When I saw it, I could not believe it, nor figure out how it was done. I had to learn more. I had to figure it out. What I saw was a simple index.html that I had created from a WebMonkey tutorial posted onto a free shared hosting website with my ISP. When I realized that anyone in the world could go to http://my1996isp.com/~cardmagic/index.html and read what I had to say, I was hooked. My first web project was a magic site that let magicians share tricks with each other after passing a test to ensure you were really a magician.

Fast forward 13 years to 2009. I had held programming jobs writing PHP throughout highschool and college, but had discovered Ruby 5 years earlier and wrote the Ruby Cookbook just 3 years ago. I ran into a blog post that has stuck with me ever sinse. It is the kind of blog post that haunts you, that follows you wherever you go, that you think about fondly on occasion and look up to send to friends.

What I found was an amazing blog post by a magician named Brian Brushwood. You should read it, I will not copy it in its entirety because you should really read it all yourself, but I will quote from it. Mr. Brushwood had carved a niche and made a name of himself out of his unique style of Bizarre Magic.When he was 20 and had just started struggling with his career choice, he reached out to a titan of magic for advice. Raymond Joseph Teller (of Penn and Teller) responded with some advice that profoundly transcends magic.

Advice #1: Be Patient With Yourself

“I am 47. I have been earning my living in show business for twenty years. I have been doing magic since I was five, which makes it 42 years. And I had the good fortune to (a) meet Penn and (b) become an off-Broadway hit at the exact right moment in time.” —Teller

It is easy to be in your twenties, compare yourself to Mark Zuckerberg or Aaron Levie and feel like you are so far behind. But founding companies is not a sprint, it is a marathon. And being a founder is not a sprint either.

“Success is the ability to go from one failure to another with no loss of enthusiasm.” — Winston Churchill

The Unicorn Club of billion dollar startup successes tells us that the average age of recent founders of billion dollar startups is 34. The founders of Workday, the third-most valuable company on the list, were in their 50s. 80 percent of unicorns had at least one co-founder who had previously founded a company.

Advice #2: Have Heroes Outside of Startup-land

“Have heroes outside of magic. Mine are Hitchcock, Poe, Sophocles, Shakespeare, and Bach. You’re welcome to borrow them, but you must learn to love them yourself for your own reasons. Then they’ll push you in the right direction.” —Teller

Who are your heroes? Steve Jobs? Richard Branson? Elon Musk? Try again. Jobs, Branson and Musk are great, don’t get me wrong, but stretch yourself. Be interesting.

Some of my magic heroes are Ricky Jay, Derren Brown, Lennart Green and David Copperfield. Some of my non-magic heroes are Ingmar Bergman, Hitchcock, Honinbo Shusaku, Steve Martin, Hemmingway and Brahms.

“The best trick to being a successful entrepreneur is to try and be a well-rounded human first.” — Chris Tacy

Advice #3: To Pitch a VC, Surprise Them

This next piece of Teller’s advice is beyond brilliant. Imagine you are a venture capitalist. All day long, every day, you hear people begging you for money. You are a professional meeting taker. You sit and listen to pitches all the time. They all blend together. Many first time entrepreneurs don’t put themselves in the shoes of the VC before they walk in asking for money.

So how do you stand out? How do you make sure that your pitch is given a fair chance? How do spice up your presentation to make it engaging and fun while still keeping it professional?

Here’s a compositional secret. It’s so obvious and simple, you’ll say to yourself, “This man is bullshitting me.” I am not. This is one of the most fundamental things in all theatrical movie composition and yet magicians know nothing of it. Ready?

Surprise me.

That’s it. Place 2 and 2 right in front of my nose, but make me think I’m seeing 5. Then reveal the truth, 4!, and surprise me.

Now, don’t underestimate me, like the rest of the magicians of the world. Don’t fool yourself into thinking that I’ve never seen a set of linking rings before and I’ll be oh-so-stunned because you can “link” them. Bullshit.

Here’s how surprise works. While holding my attention, you withold basic plot information. Feed it to me little by little. Make me try and figure out what’s going on. Tease me in one direction. Throw in a false ending. Then turn it around and flip me over.

I do the old Needle trick. I get a guy up on stage, who examines the needles. I swallow them. He searches my mouth. They’re gone. I dismiss him and he leaves the stage. The audience thinks the trick is over. Then I take out the thread. “Haha! Floss!” they exclaim. I eat the floss. Then the wise ones start saying, “Not floss, thread. Thread. Needles. Needles and thread. Ohmygod he’s going to thread the need…” And by that time they’re out and sparkling in the sunshine.

Read Rouald Dahl. Watch the old Alfred Hitchcock episodes. Surprise. Withold information. Make them say, “What the hell’s he up to? Where’s this going to go?” and don’t give them a clue where it’s going. And when it finally gets there, let it land. An ending.

This takes pratice. It is very hard. Teller says it took him 8 years to figure out how to do this for one of his tricks. If you can manage to weave this into your10-slide VC pitch, you will be heads above other founders.

Advice #4: Love Something Besides Technology and Startups, Preferably in the Arts

“I should be a film editor. I’m a magician. And if I’m good, it’s because I should be a film editor. Bach should have written opera or plays. But instead, he worked in eighteenth-century counterpoint. That’s why his counterpoints have so much more point than other contrapuntalists. They have passion and plot. Shakespeare, on the other hand, should have been a musician, writing counterpoint. That’s why his plays stand out from the others through their plot and music.“ — Teller

This is such a simple and profound piece of advice, and so true. Blend your passions. Learn from other disciplines. Stand out. Be your own mashup.

I should be a magician. I’m a startup founder. If I’m good, it’s because I should be a magician.

 

When Should I Launch My Product?

Dear Lucas…

My product automates a task that is currently manual and labor intensive for most companies. I started the company almost a year ago and I am putting the finishing touches on the product right now. We are about two weeks from launching. My technical co-founder is building it out and we have hired a designer to make it pretty.

Do you think it is a good idea to wait on the launch until the design is incorporated or to launch it in a couple weeks and iterate?

—Product-Loving CEO

Hi Product-Loving CEO,

You should have “launched” your service a year ago as a consulting company.

You are in the business of outsourcing services to businesses, not building a product. People don’t care if it is automated by your brilliant product or whether you have 1,000 monkeys doing the service behind the scenes for them on-demand.

If you can’t find people that are willing to pay you on a consulting basis, you won’t be able to attract people for the brilliant automated product. The product is not your saving grace, your ability to convince people to pay you to help them is your saving grace. It is not about the product, it is about your reputation doing the service you provide better, faster, and cheaper than a company can do themselves.

You are the CEO. You are not the product manager, you are not the head of engineering, you shouldn’t be waiting on the product at this stage of your business. You should be hustling to build the reputation of your business, with or without a product. Be scrappy.

You should be convincing the world that you do your service better than anyone else. I already know you do, I have seen your results. You need to be the P.T. Barnum of your services. Whether you have a product or not should be barely visible to your customers right now.

You are the CEO, you need to focus on your Go-To-Market strategy: how will people find you, what are your sales channels. You don’t need a working product to do that. Hustle. Show the world what your sevice is supposed to look like. Wet their whistles. Make them say, yeah I want that and I will pay for that. Make them come to you begging you to take their money.

Otherwise you have failed already, product or not.

—Lucas

 

I Have a Great Idea, Should I Start a Company?

Dear Lucas…

I have an idea I’ve been working on that I’d love to get your feedback on. I’d also like a little mentoring on startups and the like if you’re willing.

It’ll probably take me a couple more weeks or a month to have my prototype ready and my idea crystallized. What I could use guidance on is how to go ask for money from VC’s or Angels…literally how to find them and get in front of them. Not averse to cold-calling and such but just need a starting point.

Also some advice on whether to even go ask for money. I don’t have savings and have the wife and two kids to care of, so taking some loans is doable but adds more risk.

And then of course would really value your opinion on whether you think my idea is good in general. I’m not expecting you to say…”yes, go do this” but want some external sense from someone I trust whether I’m on a good path with the idea.

—On the Ledge

Dear On the Ledge,

The long and the short of it… Don’t do it. Just don’t do it. Why are you even thinking of trying? You have a family to support, this is not the right time. The product doesn’t seem to fit any real need, I can kind of see why someone might use the thing, but I don’t see why anyone would ever pay for it. It is a product looking for a problem to solve. I am happy to talk to you tomorrow, but this will be my advice.

—Lucas

Dear Lucas…

Yeah, I was hoping that I wasn’t doing the “looking for a problem to solve thing” but perhaps I am. Really the goal is to make it as easy as possible for business folks to do widgets. Sounds like I’m stretching though.

As far as timing I wouldn’t take too big of a risk here but the timing’s as good as it’s going to get from this point on I believe. My wife is in my corner and we’re decently setup.

Anyway, no need to talk tomorrow. Thanks again for the feedback.

If I have ideas in the future do you mind if I share them with you like this?

—On the Ledge

Dear On the Ledge,

I am happy to talk to you still, you can’t get defeated so quickly if you ever stand a chance. If I can talk you out of it in 88 words, you will never succeed. All ideas start out terrible, that’s not the point. The point is the fight, the point is execution. If now is the time, nobody should be able to talk you out of it. There are always a hundred thousands reasons not to do a startup, they are all valid reasons, they are all correct reasons, they are all good reasons. You will never succeed if you listen to reason.

Does your idea suck right now? Yes. Does that mean it is the end of the line? Only if you give up on yourself.

“Success is the ability to go from one failure to another with no loss of enthusiasm.” -Winston Churchill

Are you ready to give up on yourself before you have even begun?

—Lucas

How Do I Get Revenue?

Dear Lucas…

My co-founder and I created a startup almost a year ago now. We put together a friends and family round, but it is running dry and neither of us have paid ourselves anything for months now.

I have about 60 people signed up for my service right now. They are not paying yet, but they know they will have to pay soon. We have been following lean methodology, so we haven’t yet built the billing system yet. When we start charging, some of our users are going to get billed $20 per month and one in particular is going to get billed $300 every two or three days.

Can you give me any guidance for what to do next?

—Seeking Benjamin

Hi Seeking Benjamin,

I hope you don’t mind me being brutally honest with you, but you need to hear this.

You are acting like a charity, not a startup. Don’t build a billing system. Ask for checks. Be scrapy. Stop acting like your code is your business. You are donating $5k/month in free service to these users, that could easily keep you and your co-founders lights on.

“You don’t get paid without trying to get paid. Assuming users will pay for something that you know give them for free is the ‘secret crackhead millionaire’ business model (let a whole bunch of crackheads live in your gorgeous mansion for free because you are confident one is a secrete millionaire). It’s the new ‘build it and they will come’ delusion.” — Chris Tacy

But there is a bigger problem here. If you have been at this for almost a year and you don’t have revenue or 10,000 users (AND doubling monthly), it is usually an indication that something deeper is rotten. You are probably not solving a Hair-on-Fire problem, a problem that people will happily hand you cash for.

As a point of reference, when I started AppFog, it was just a landing page with an email capture form, no product or code yet. In one day I had 800 people signed up. When I finished the early prototype a few weeks later, I had 2,000 people waiting for accounts, but I only let in a couple dozen. Two weeks after that, I had some people paying for the service and over 4,000 people waiting for accounts.

Before I even started building AppFog, I knew without a doubt I was solving a Hair-on-Fire problem. It is very rare to find a product-market fit on the same day you come up with an idea, I was very blessed, and it only happened after years of false-starts (as my loving wife can tell you).

When you do build a solution to a Hair-on-Fire problem, you will know without any doubt. You won’t be able to stop people from finding you, because people will tell each other about it. They will start asking you to take their money. Not just one guy or a couple, but many people will beg you to take their money.

So how do you find a Hair-on-Fire problem? Talk to your customers.

Not talking to your customers is the #1 most common mistake I see with first time CEOs. If you don’t have enough time, you don’t need to talk to every single one of them. But certainly you should work hard to talk to the most promising ones. The guy spending $300 every few days for example. How is he using your product? Are there other people like him that have his pain? Is this something people are looking for? Are there other solutions already? Why isn’t he using those solutions? How did he find you?

You don’t ask your customers directly what their Hair-on-Fire problem is—it is your job to figure that part out. Imagine if someone called you and asked you what your Hair-on-Fire problem was. You would probably tell them: “I have no idea what you are talking about”. But you have to have conversations and understand other people’s pains deeply. Pains people are willing to pay for. Pains that people are pro-actively looking for solutions for.

Without these conversations, you are blindly throwing darts. You are investing a lot of time, a lot of money, and a lot of code on a pure hunch or a whim.

Three very important finesses

Don’t forget to get to know your customers personally. Never treat them as means to an end. Learn from them, but also learn about them. Take interest in them.
Don’t deceive yourself into thinking that you found a Hair-on-Fire problem just because you have talked to your customers. At the early stages of your company, if your revenue or user-base isn’t doubling every month or two with little effort, your ambitions are very likely too small—the problem you are solving is too little. You are probably asking the wrong questions. It doesn’t matter if you have launched your product or not, even a decent teaser page about Hair-on-Fire problems can easily go viral.
Don’t “pitch” your customers, listen to them. Many first time founders think that when they talk to customers, they should be trying to sell them on their product. Wrong. Usually, the founder ends up talking so much during the conversation that there is not enough time to listen to the problems of the customer. Spend more time listening than talking. Ask good questions.

You do not need to start from scratch. I have seen your website and I think you have built a really beautiful product and you have a strong talent for building good products. You just don’t yet have a nose for solving Hair-on-Fire problems yet. That’s ok, you can work on improving that. But first you have to accept that you need to work on that part of yourself. It won’t be easy, it will stretch you in ways you won’t be comfortable with. It is not supposed to be easy. But you can do it, I believe in you.

—Lucas