A few Fridays ago, I had the fortune of reconnecting with a founder, backed by some of the most recognizable names in the Valley and exited his business last year to a juggernaut in the data space. Now working on his second startup. And he brought something extremely curious to my attention. “Investors shouldn’t be too founder-friendly.”
I’ve talked to hundreds of founders and seen thousands of pitch decks in my short 4 years in venture capital. Yet, that Friday was the first time I’d ever heard that. And it was too bizarre for me not to double-click on. The fact that the sentence also came out of a founder’s mouth and not an investor’s bewildered me even more.
It was a warm autumn 7pm. The golden ball had just found its home beyond the rolling hills of San Francisco. The sky above, dyed violet melting into a soft pink. I was walking up to Liholiho Yacht Club. According to my pal, the best spot in town for Hawaiian food. A 7:30 reservation for our quarterly mentor-mentee dinner.
As I was walking up from SOMA, I was running through the conversation I just had with a founder. He closed the conversation off with: “You should really share this advice publicly.” He was right. ‘Cause in my 3 years in venture capital, I’ve shared that same piece of advice I gave him more than 50 times at that point. I’d been meaning to. I had 11 blog posts written already, just not published. All written in an FAQ format. Yet, the only thing I was still wrestling with was the name of the blog.
It seems trivial in the grander scheme of things. But the perfectionist, inspired by my younger career in art, kept nagging me.
Reality on Ice (ROI). Nah, that wasn’t it. Sounds like a Disney ice show.
Irrogueular. Nah, too eccentric.
David’s blog. Mhmm, talk about uninspired.
Curiosity. Oooh, I like this one, but (1) it’s taken, and (2) doesn’t feel deep enough.
And 80 more where those came from. But none clicked.
Anxious, once again, I began ideating as I bobbed and weaved between the evening crowds. Yet to no avail by the time I reached Liholiho.
Dinner was great as per the usual. My mentor had just joined a new startup, leading a new initiative. We talked work. Life. Athletic endeavors. Romance. And of course, food. It came to no surprise when we two hungry bears needed more to satiate our appetite despite a wonderful meal. After we were “Yelping” places to go to, which we probably flipped through a dozen or two, we gave up.
“David, let’s just grab a cup o’ Joe, and call it a night. Wanna go to-“
“Wait. That’s it!”
“What’s ‘it’?”
“Coffee.”
“That’s what I said.”
“No, no, no… for my blog. The name. My job is to grab coffee with folks. And at the same time, just like caffeine kickstarting all of our days, hopefully my blog can help founders kickstart their startup.”
I ended up scrapping 10 of my 11 blog posts. The only one I kept was my thesis. And I started anew. I spent 3 months ideating a name. 3 years, if you count all the random other WordPress blogs I started. But all it took for me was a moment – a spark. The closest thing I could analogize, at that point, to gut feeling.
Afterword
Oddly enough, this past week, three people independently asked me why this blog is called Cup of Zhou. One pronounced it “cup of zow” (like cow). Another pronounced it “cup of zoo”. The last was over text. I don’t blame them. They’re not the first, and they’re definitely not the last. I respond to them all. They’re all part of my American-born Chinese identity’s memoir. And this blog is just another chapter in my memoir.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
A few weeks ago, I published Part 1 of this post on inspiration and frustration. In that time, its reception has been uplifting. Easily my most popular and well-received blog post to date. It also happens to be one of my favorite posts to have published so far. So, I thought I’d continue to ask people about their cocktail of emotions now, the below two questions:
What is the one thing that inspires you so much that it makes everything else in life much easier to bear?
What is stressing/frustrating you so much right now that it seems to invalidate everything else you’re doing?
But, each person can only choose one of the above two questions to answer.
Three of the below candid responses are people I asked from the first cohort, while the other eight are people I thought would add a new degree of freedom on perspective. All of which were drawn more to their inspiration than their frustration.
Two and a half weeks ago, I wrote about my mental model for confronting fear – the art of running into walls. Inevitably, I’ve had more conversations about fears and how to overcome them since then. And in those moments, I was reminded of a question Seth Godin posed on his recent appearance on The Tim Ferriss Show. Most people ask the question: “What would you do if you could not fail?” And subsequent answers led to wild dreams, achieving the impossible, and often times, still not a step closer to achieving that dream, myself included. I wanted to be an astronaut, a pilot, an Olympic medalist, and more. Instead, Seth posed the counter: “What would you do if you knew you would fail?“
Knowing that I’d fail
Seth cites that most marathoners competing in the Boston Marathon do not aim to win, yet they still do it. Similarly, I work with founders knowing that most will fall short of their dreams. If we’re talking about expected value – the sum of all the dollar size outcomes of each possibility, multiplied with their respective probability of occurring, then:
E(Vstartup success) << E(Vmost other career paths)
Rationally speaking, the career of a founder is not designed for success. But hell, it’s the irrational founders who do find it. Against impossible odds.
But why?
Why still pursue a career when the odds aren’t ever stacked in your favor?
On the same token, why participate in any contest if you know you’re most likely going to fail? And, I mean contest in the most liberal sense here. Just like a marathon is a contest of endurance and physical prowess, building a startup is a contest of capital, time, and social impact. Confessing to your crush is a contest of love. Sending a cold email is a contest of attention. The more saturated the market – the contest – the more likely you are to fail.
How to Win
In winning, I focus on only one question: What will I gain in this pursuit that’s independent of the result of the contest?
Running a marathon proves that I can push my body beyond its limits.
Confessing to my crush gives me resolution to move on in my life.
I work with startups to build friendships and acquire skills that will transcend the dollar value of the venture. People who are ambitious typically learn fast, and will try again and again until something works. If not this idea, then the next. If not today, then tomorrow. And, if not tomorrow, then the day after. It’ll only be a matter of time before preparation meets opportunity. It’s why we call startups 10-year overnight successes.
So when I take on a new endeavor even outside the exciting world of venture, I look for where there will be a net positive in my life and the world around me, on 3 fronts:
The relationships/friendships I will build along the way,
The skillset I will develop and/or hone,
And the impact the process will have in the lives of other people, particularly my friends and family.
If the above function has a positive first and second derivative, then I know I will win even if I lose.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
Taking it a bit further, what is one skill that they have that made all their other skills much easier to acquire and/or hone? And I could only come up with one answer, which is understood in various nominations. Resourcefulness. Scrappiness. Creativity under pressure. Staying lean. Frankly, their ability to hustle.
“The best network”
What is the best network for developing entrepreneurial skills?
The simple answer: One you build yourself.
The longer answer…
Entrepreneurship is a career that requires you to hustle. Likewise, a network you build yourself from reaching out and cold emailing has the potential to be stronger than even the best of networks out there. But entrepreneurship can come in two flavors: a hobby and a lifestyle.
A hobby or a lifestyle?
If entrepreneurship is a hobby, there are amazing collaborative:
Slack groups,
Subreddits,
Facebook groups,
Quora spaces,
Meetup groups,
Conferences/trade shows/expos,
You name it, it’s out there.
But it will be akin to sitting in a classroom and learning the theory and conceptualizations.
If entrepreneurship is a lifestyle, you need to learn by application. And unfortunately, you’ll need to develop scar tissue from making real mistakes outside the classroom. You need to hustle and find what works and doesn’t work for you. Two of my favorite venture firms, 1517 Fund and Hustle Fund, invest in founders who do exactly that. Unlike many other venture funds, it’s in their thesis. Learn by doing. Learn by hustling. While there is merit in literature and academic institutions, you are learning at the pace of the system. And when you’re a founder, often times, time is not on your side.
In a parallel, an entrepreneur once described the bifurcation as a “lean-back” versus a “lean-in” activity. A “lean-back” activity would be watching a sitcom, picking strawberries, or typing a simple response to an email chain. Whereas a “lean-in” would be playing football, playing a competitive first-person shooter game, or fixing a bug in the code 2 hours before a product launch. Entrepreneurship, as you might guess, is a “lean-in” sport. So is networking.
There are two French words I often allude to – savoir and connaître. Both mean to understand. Savoir means to understand on a superficial, factual level. Connaître means to know on a deeper, emotional level – to be deeply familiar with. As an entrepreneur, the lifestyle you choose is often not passive, but an active one, or some might argue, an aggressive one. One where the clock started ticking before you started. Sometimes, before you were even born. Ben Horowitz makes a brilliant comparison between a peacetime and a wartime CEO. From his piece, I’ll quote two of his juxtapositions:
“Peacetime CEO knows that proper protocol leads to winning. Wartime CEO violates protocol in order to win.”
“Peacetime CEO has rules like ‘we’re going to exit all businesses where we’re not number 1 or 2.’ Wartime CEO often has no businesses that are number 1 or 2 and therefore does not have the luxury of following that rule.”
Where you’re required to make decisions in difficult times, and if you don’t understand a concept or a skill to the level where it’s engrained in your bone, you will fumble more often than you run touchdowns. Part of the reason why second-time, third-time entrepreneurs usually perform better than first-time entrepreneurs.
I graduated from a stellar university, UC Berkeley, located at one of the epicenters of Silicon Valley/Bay Area, where I got my economics degree and a certification in entrepreneurship and technology. I took a number of classes that allowed me “to learn and hone” my entrepreneurship skills. While there were a handful, I came out feeling I was equipped with the knowledge to take on the world. When I put them to the test, I realized I knew nothing. When faced with reality, I didn’t know how to deal with edge cases since edge cases are rarely taught in the classroom.
Most communities and classes teach entrepreneurship skills in abstractions, making it easier to understand. Even this blog post is, in many ways, an abstraction. They rarely teach the edge cases ’cause frankly, there are too many “what if’s”. But as an entrepreneur, you need to be ready for the “what if’s”. For anything and everything. And over time, what transcends the individual skills you have is having a mental model to hedge yourself from future edge cases.
I once asked someone what being an expert meant. And I really liked his answer, as it stuck with me all these years. He said, “An expert is someone who has made all the mistakes in a very narrow field.”
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The tech world, particularly Silicon Valley, in the past 2 decades, has accelerated its growth ’cause of one mantra: “Move fast and break things.” Some of the most valuable products we know today were built because of that. Facebook, whose founder coined the phrase. Google. Amazon. LinkedIn. Uber. The list goes on. In sum, be “agile”. Simultaneously, I see founders, on the regular, take this mental model too far. They move fast, but they rarely give enough time to test their hypotheses.
Equally so, some companies cannot afford to “break things”. Take Dropbox, for example. Ruchi Sanghvi, founder of the South Park Commons Fund, former VP of Operations at Dropbox, and Facebook’s earliest female engineer, told VentureBeat in 2015, “Quality is really, really important to Dropbox, and as a result we needed to move slower — not slowly, but slower than Facebook.” Ruth Reader, who wrote for VentureBeat at the time, further extrapolated, “What was right for Facebook — fast-paced iteration and fixing bugs in real time — didn’t work for DropBox, an application people entrusted with personal documents like wedding photos or the first draft of a novel. What was valuable to DropBox was the details.”
On the other extreme, there are founders who spend day after day, week after week, and sometimes year after year, pursuing the “perfect” product before launching. If they were right on the money before, by the time they launch 6 months later, they might be 6 months off the money. Take the situation we’re all in today for example – the pandemic. No one could have predicted it. In fact, I had many a few predictions before the pandemic, which all proved to be unfortunately wrong.
The Marketplace of Startups, written on February 24, 2020 – I alluded to an opinion I held that consumer social was almost dead. The consumer app market had become so saturated that it was hard for new players to play in.
Myths around Startups and Business Ideas, written on October 12, 2020 – Pre-COVID, I was more bullish on Slack than Zoom as a public stock investment. History proved otherwise.
… and more to come. Mistakes are inevitable. And “the rear view mirror is always clearer than the windshield”, as Warren Buffett would describe. Seth Godin said in his recent interview on The Tim Ferriss Show: “Reassurance is futile because you never have enough of it.”
At the end of the day, as a startup founder, your raison d’être is creating value in the world where there wasn’t before. As Bill Gates puts it: “A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it.” Analogized, your startup is that platform.
So, in this post, using the lessons from other subject-matter experts (SMEs), I’ll share how startup teams can balance speed with intentionality in their go-to-market (GTM) strategy.
A number of founders ask me for fundraising advice. While they come in different magnitudes, one of the common themes is: “I’ve had many investor meetings, but I still can’t get a term sheet. What am I doing wrong? What do I need to do or to say to get a yes?”
To preface, I don’t have the one-size-fit-all solution. Neither do I think there is a one-size-fit-all solution. Each investor is looking for something different. And while theses often rhyme, the “A-ha!” moment for each investor is a culmination of their own professional and life experiences. This anecdote is, by no means, prescriptive, but another perspective that may help you when fundraising, if you’re not getting the results you want. This won’t help you cheat the system. If you still have a shoddy product or an unambitious team, you’re still probably not going to get any external capital.
One thing I learned when I was on the operating side of the table is: When you want money, ask for advice. When you want advice, ask for money. It’s, admittedly, a slightly roundabout way to get:
Investor interest,
And reference points for milestones to hit.
But it’s worked for me. Why? Because you’re fighting in a highly-competitive, heavily-saturated market of attention – investor attention. This method merely helps you increase the potential surface area of interaction and visibility, to give you time in front of an investor to prove yourself.
Investors are expected to jump into a long term marriage with founders, while, for the most part, only given a small cross-section in your founding journey to evaluate you. It’s as if you chose to marry someone for life you’ve only met 60-90 days ago. While angels and some people have the courage and the conviction to do that, most investors like to err on the side of caution. Contrary to popular belief, venture capitalists are extremely risk-averse. They look for risk-adjusted bets. And if you can prove to them – either through traction or an earned secret – that you’re not just a rounding error, you’ll make their lives a lot easier.
So, let me elaborate.
When you want money, ask for advice.
As you’re growing your business and you want to show you are, ask investors for advice. Tell them. “So I’ve been growing at X% MoM, and I’ve gotten to Y # of users. I’m thinking about pursuing this Z as my next priority. And this is how I plan to A/B test it. What do you think?”
And if you keep these investors in the loop the entire time and ask and follow-up on their advice, at some point, they’d think and ask, “Damn, this is an epic business. Will you just take my money?”
So, what are good numbers?
The Rule of 40 is a rough rule of thumb many investors use for consumer tech markets. Month-over-month growth rate plus profit should be greater than or equal to 40. So you can be growing 50% MoM, but burning money with -10% profit, aka costs are greater than your revenue. Or you can be growing 30% MoM, but gaining 10% profit every month. And if you’ve got 10s of 1000s of users, you’re on solid ground. Better yet, one of the biggest expenses is increasing server capacity costs.
For more reference points on ideal consumer startup numbers, check out this blog post I wrote last year.
For enterprise/B2B SaaS, somewhere along the lines of 10-15% MoM growth. With at least 1 key customer logo. And 5 publicly referenceable customers.
Of course, the Rule of 40 did not age well for certain industries in 2020.
When you want advice, ask for money.
When you ask for money most of the time, investors, partners, and potential customers will say no, especially if you’re super early on and don’t have a background or track record as an entrepreneur. So when they do say no, I like to ask them one of my favorite questions: “What do I need to bring you for you to unconditionally say yes?” Then, they’ll tell me what they want to see out of our product or our business. These, especially if they’re reinforced independently across multiple different individuals in your ecosystem, should be your North Star metrics. And when you do put their advice to action, be sure to follow up with the results to their implemented advice.
You either do what they recommended. And show them what happened. And what’s next.
Or you don’t do what they recommended. But show that you heavily considered their recommendation. What you did instead. Why you chose to do what you did instead. And what’s next.
To take it one step further, once I ask the above question to have a reference point for growth trajectory, I ask: “Who is the smartest person(s) known to achieve X (or in Y)?” with X being the answer you got via the previous question. And Y being the industry you’re tackling.
Then, go to that person or those people and say, “Hey Jennifer, [investor name] said if there’s one person I had to talk to about X, I have to talk to you.” Feel free to use my cold email “template” as reference, if you’re unsure of what else to say.
If you use this tactic again and again, eventually you’ll build a family of unofficial (maybe even official) mentors and advisors, even if you never explicitly call them that. Not necessarily asking for money all the time. But asking for money might help you ignite the spark for this positive feedback loop.
In closing
When I was on the operating side, a brilliant founder with 2 multi-million dollar exits once told me: “Always be selling. Always be fundraising. And always be hiring.”
I didn’t really get it then. In fact, I didn’t get it the entire time I was on the other side of the table. What do you mean “Always be fundraising”? Should I just be asking for money all the time? What about the business?
It wasn’t until I made my way into VC at SkyDeck that I realized the depth of his words. Keep people you eventually want to fundraise from and hire in the loop about what you’re building. Keep them excited. Build a relationship beyond something transactional. Build a friendship.
Jeff Bezos put it best when he said:
“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.
“At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow and we’re very stubborn. We say we’re stubborn on vision and flexible on details.”
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As a venture scout and as someone who loves helping pre-seed/seed startups before they get to the A, I get asked this one question more often than I expect. “David, do you think this is a good idea?” Most of the time, admittedly, I don’t know. Why? I’m not the core user. I wouldn’t count myself as an early adopter who could become a power user, outside of pure curiosity. I’m not their customer. To quote Michael Seibel of Y Combinator,
… “customers are the gatekeepers of the startups world.” Then comes the question, if customers are the gatekeepers to the venture world, how do you know if you’re on to something if you’re any one of the below:
Pre-product,
Pre-traction,
And/or pre-revenue?
This blog post isn’t designed to be the crystal ball to all your problems. I have to disappoint. I’m a Muggle without the power of Divination. But instead, let me share 3 mental models that might help a budding founder find idea-market fit. Let’s call it a tracker’s kit that may increase your chances at finding a unicorn.
I’ve had this long-standing belief – which if you’re a regular reader of this blog, you’re no stranger to – that founders need to have a personal vendetta when building a business. They must have something to prove or someone they’d want to prove to. Building a business is finding where selfishness meets selflessness. In fact, I’d argue that’s true in every ideal professional career.
The path of entrepreneurship is one where resilience is the floor, not the ceiling. While I understand, it is not the only career path that carries this trait, it is the one I am most familiar with. And having asked 31 people, 18 of which are or have been entrepreneurs, I’ve learned that everyone, despite their job title or background, can be scared in the face of obstacles. Everyone feels fear, myself included. The question is what do we do next, after the feeling of fear enters our heart and mind.
Note: I don’t know how many of these book reactions I’ll write. I don’t know how frequently I’ll write these either. But I do know that when I do write one, it’ll have changed my life, my thoughts… me – in a meaningful way.
The Preface
My friend, an extremely well-read fiction purist, highly recommended this book to me, a non-fiction purist, one beautiful Monday evening. She said if there was only one book I had to read when it came to fiction, it had to be this one. I asked her what it was about. She said only one word: “Perspective.”
Moreover, she prohibited me from doing any research online (as I like to do) or even reading the summary on the back cover. To date, it is the only book I’ve read not having done any homework on it whatsoever. And I’m glad I didn’t.
What I learned was much more than I could have ever hoped for. Throughout my read of Room, I had a constant reminder of what Josh Waitzkin, author, chess champion, and martial arts champion, said February this year on Episode #412 of the Tim Ferriss Show:
“When I studied Tai Chi for a year, I thought I knew what I was doing. And I thought I was really started to understand it. But after 2 years, I realized everything I thought after a year was wrong. It was just wrong. But now I understood.
And then after 4 years, I realized everything I thought after 2 years was wrong. And he went on with this story and this pattern, but now I understood. And after 8 years, everything I thought after 4 years was wrong. And now I’ve been training for 16 years; everything I thought after 8 years was wrong. And now, I finally understand…
It’s easy to think we’re in the dark yesterday, but in the light today. But we’re in the dark today too.”
Room by Emma Donoghue
I will warn that in this section, I will reveal some light spoilers. If you want to save that experience for yourself, feel free to jump to the epilogue of this post.
“‘Scared is what you’re feeling,’ says Ma, ‘but brave is what you’re doing.'” (116)
The first 100 pages were cute and endearing. Slowly, but surely, over the course of a week, I learned of the world inside an 11-by-11-foot space, from the eyes, ears, and the imagination of young Jack. To me, they were slow. Yet, each time Jack’s Ma shared one additional layer of perspective – another reference point, another anchor – I felt thrown back into square one. Seeing the 11-by-11 world again in new eyes.
The next 100 pages happened before I had a chance to blink. All before the hour was up. Yet only a mere 48 hours passed in the timeline of Jack’s world.
The final 100 pages, for the first time, I began to contextualize Jack’s world to mine. How much I take for granted. The small things. The ephemeral nature of life. But also how quickly I, like much of the world, tend to jump to conclusions when given only a fraction of the bigger picture. The me was exemplified in all the other characters in these 100 pages.
It’s a beautiful story – one I didn’t think I’d like. 10 pages in. It was just another book. 20 pages. It was just another book. 30. 40. 50. And so on. But on page 82, it went from another book to THE book.
The Epilogue
Perspective. It’s something I think the world could always use a little more of. There’s 7.8 billion people on this planet. One of eight bodies in this solar system. One of many interstellar objects and phenomena out there.
I’m writing in one of 6909 languages used in the world today. A participant in one, maybe two, of over 3800 cultures in this world. Both I’m sure are underestimations. Yet, everyone’s living a life I seemingly know nothing about.
Once again, I’m reminded of the answer one of my high-schoolmates wrote in his college application. A brilliantly concise one, to the question: What is a problem that exists in the world right now?
He wrote: “Ignorance. I know nothing about it.”
While the book doesn’t aim to answer all your existential questions, it does shed light into the simplicities and complexities in our world. And how often we tend to overlook each. Taking each as granted.
The world is in turmoil these days. A revolution of emotions. A war on beliefs. We spend so much time speaking our thoughts. Yet, not as much time listening to others’. As someone in the intelligence world once told me, “The most effective kind of communication is listening, not speaking. And listening is not just hearing.” Hearing is just letting audible sound transmit through the air. Listening is paying attention to the words and the context that follow another’s intentions.
So, I’ll end with Ma’s words on page 217. “That’s why God gave you a mouth to breathe through.”
Room, by Emma Donoghue, a book that reminded me that in exhaling I often forget to inhale.
The Letters and Passages is a series where I share my raw thoughts on the books, letters, passages, and the literature I come across. Those that inspire me. Those that change my perspective. And those that resonate the most. So much so, you might realize that the headings are in violet rather than the usual cyan blue.
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