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First published in Great Britain in 2018 by Random House Business Books
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ISBN 9781847942302
This book was always going to be very personal for us. We’ve never put anything out into the world quite like this, and we may never do so again.
However, shortly after we started writing this book, everything in our lives changed. Our father, W. Robert Reum, passed away very suddenly and unexpectedly. More than anything, he was the patriarch of our family, our oldest friend as well as an incredibly loving father and husband. He was an exemplary human being.
As devastated as we’ve been, we know that he would want us still to “pull it together” (as he used to say) and make this book that much better. So that’s what we’ve attempted to do.
Beyond that, the book has given us a chance to reflect on our father’s influence on us as businessmen and entrepreneurs. Over the last decade, we started to share some business ventures with Dad. It was truly special to be able to learn from such a strong and humble leader and, occasionally, to be able to teach him something, too.
Our dad was all about the fundamentals and the universal truths of both business and life. We know what he would say if he read our book: “Of course I’m proud of you and this new world. Information 2.0 is great, but it’s irrelevant if you don’t get the basics right: strategy, execution, and people.”
He was absolutely right. He pretty much always was, and we wish we’d told him that more often. If you do everything in our book but get the foundation wrong, everything we’ve tried to espouse will be for naught. We hear you, Dad—and we agree.
This book is dedicated to our dad. We are so grateful and love you so much.
YOU’VE PICKED UP this book because you’re an entrepreneur—or are thinking about becoming one. Welcome to the faster, more complicated, and ever more competitive startup landscape.
Through the Internet, new distribution models, and abundant access to information and capital, the barriers to entry for entrepreneurs have dropped and the floodgates have opened. It’s easier and less expensive to start a business in today’s market than it has ever been, and entrepreneurs are taking full advantage of this opportunity. Over the last twenty years, the cost of launching a new business has come down by a factor of nearly 100, due largely to the proliferation of open source tools and the Internet’s many applications to allow entrepreneurs to start some businesses today for as little as $5,000. These same forces are also creating a more crowded environment in which it is more challenging to compete and grow. The old ways of running a business are less impactful. The traditional methods of starting and scaling are too cumbersome, costly, and slow.
Today, the companies that win are those that move more quickly and flexibly than their competitors. This new environment requires new strategies, new mind-sets, and new tactics to shorten timelines, stand out, and win. That’s what this book is about.
Within these pages, we share with you our approach to succeeding in today’s sped-up startup world, featuring ten “Startup Switchups” that flip typical startup advice on its head. One Switchup at a time, we take you through our insights on what’s new at each stage of a venture—and show you proven strategies to help you develop a crucial edge over the competition. We hope that what you learn in these pages will open your mind and fundamentally change how you think about starting and growing your company.
We’re brothers who know the brave new startup world firsthand. As former Goldman Sachs investment bankers, we first watched businesses get built through the lens of corporate finance and then made our jump, building a business from inception to sale. Now, as operators and VCs at our new venture capital and brand development company, M13, we take a portfolio approach and still get our hands dirty. We’ve played various positions in growing great brands and have been fortunate to support notable modern brands, including Bonobos, Lyft, Warby Parker, Class-Pass, and more than a hundred others.
In our careers, we’ve spent the most time as entrepreneurs. Creating VEEV, a consumer spirits company, in 2007 from the ground up, we went from 0 to 60 in less than a decade: seeing the market opportunity for an all-natural, eco-friendly vodka, developing the product, selling the product out of the back of our car, building our customer base, marketing the product nationally, creating brand extensions, and successfully selling the business to a larger company. In doing so, we learned a tremendous amount about launching and growing a consumer products business as well as many of the avoidable pitfalls. In this book, we’ll share with you some of the dos and don’ts we learned from our firsthand experience.
Whether you are opening an e-commerce store or a physical boutique, the tools and information that you need to get started are at your fingertips. As Steve Case, the former CEO of AOL, put it, “The exciting part about living today is that anyone can be an entrepreneur.” We’re living in a world where information is not just readily available but, in many cases, overwhelming. Building a business from the ground up is not easy; that’s why we’re here: to help you cut through some of the noise and provide some advice garnered from our experience as both operators and investors.
We want you to better understand what the forces of globalization and innovation mean for you and your business, whether your startup is just a thought in your head or a living, breathing entity. To increase your odds of success, we’ll be sharing the unconventional tricks of the trade we’ve gained both personally and from many of the successful entrepreneurs we’ve been lucky to work with and learn from.
Though entrepreneurship is uniquely challenging, there may have never been a better, or more important, time to take the leap. Entrepreneurs are world evolvers whom we need to help us progress in all sectors of society. As Eric Schmidt, the executive chairman of Alphabet and someone we respect very much, says, “[Entrepreneurs] are people who somehow believe that they can make the world different and better, and they’re willing to take their own lives, their own time, and so forth, and their own risk capital, and put it together to create literally millions of jobs and ultimately trillions of dollars of wealth.” Entrepreneurship is by no means easy, but we hope this book will help you overcome the inevitable obstacles and become one of the game changers.
How competitive is it out there? According to a recent survey, an estimated 550,000 new businesses open in the United States each month. Unfortunately, the competition is too fierce for all of those businesses to survive, and many do not. The intense competition is not limited to the startup world. The S&P 500 Index showcases a dramatic fall in the average life-span of even the most well-established companies—from sixty years a few decades ago to twenty years today. In other words, competition is rampant throughout today’s economy, and it is forcing companies large and small to evolve or die more quickly than ever. Let’s do a deeper analysis to understand what’s happening and how it impacts your business.
When we were at Goldman, Kevin Plank, the founder of Under Armour, who was one of our earliest inspirations, spoke to us about the minimum amount of time it takes to build a brand, which he said at the time was approximately ten years. That made sense. People needed to be exposed to a product or service multiple times and in a variety of settings in order to create strong and—hopefully—positive associations. We saw that with VEEV, and, until recently, we thought that Kevin’s rule still held true. However, this is often no longer the case.
Just as startup companies are both emerging and failing at unprecedented rates, brand building is no longer a decade-plus process. The amount of time that it takes to build a recognizable brand, a “household name,” has been dramatically reduced. One key indicator of this is the rate at which today’s companies are scaling. (See the chart below.)
As Mary Meeker pointed out in her 2016 Internet Trends Report, it took Nike fourteen years to reach $100 million in sales, Lululemon nine years, and Under Armour eight. At the time, those brands were some of the fastest-growing consumer brands around. They were—and remain—massive successes. However, in the last few years, we’ve seen tech-enabled consumer brands such as ClassPass, Dollar Shave Club, Casper, and the Honest Company reach the same heights in significantly less time. (And fall equally fast—Beepi, established in 2013, was out of business by 2017.)
We believe that five critical factors are fueling the rapid scaling of consumer brands in today’s market. They combine to act as a flywheel, accelerating business life cycles.
It’s easy to take for granted the extent to which these devices have worked their way into our waking and sleeping lives. What we used to call “smartphones” are now portable computers that we carry around with us and touch on average 2,600 times per day. Americans spend 71 percent of their total digital minutes on smartphones, and as the growth of desktops slowly plateaus, smartphone usage continues to rise. In fact, mobile Internet usage is growing at over 11 percent each year and recently hit a new high of 220 minutes per day. In contrast, in 2011, usage was under 50 minutes. In 2016, US smartphone users spent 90 percent of their time on mobile devices interacting with apps. More and more, people are able to do almost everything on their phones, from purchasing goods to ordering dry cleaning or massages.
The implications? First, people are more reachable than they have ever been, and they have the ability to make purchases conveniently without entering stores. Second, startups have easier and cheaper access to the market than ever before. As opposed to the past, when entrepreneurs faced expensive distribution networks, today vendors can easily get their products in front of consumers anywhere, anytime. Any vendor can sell through a platform such as Amazon, taking power away from the giant retailers that used to control the market. This dynamic shift has placed more power in the hands of technology platforms across industries such as gym membership (e.g., ClassPass) and ride-sharing services (Uber and Lyft).
As a result of the increased time spent on mobile platforms and social media, consumers in the United States, especially Millennials, have led the charge on a developing trend: sharing. Though “sharing economy” often refers to peer-to-peer platforms, there is no doubt that social media provide a medium for people to express their opinions on the goods and services they consume. Take entrepreneur Gary Vaynerchuk, for instance. We met him fairly early on when he was creating his Wine Library. It’s not every day we meet another adult beverage alum who has transcended the category, but he’s found tremendous success across various social and entertainment channels: his YouTube show, the #AskGaryVee show; and The Gary Vaynerchuk Audio Experience podcast. Across those channels, Gary has been able to interact with millions of customers and fans by responding to their Tweets and Instagram posts and covering topics ranging from gadgets, trends, and new products, to wine.
Whereas in the old days, if you tried a product and loved it, you might have recommended it to a few friends; today, if you post it to your Facebook or Instagram account, thousands of your friends and followers can see it in a matter of seconds. That is also why a product’s ratings on Amazon or a restaurant’s Yelp reviews are so impactful: consumers are making decisions based not only on what their friends post but on aggregated product reviews.
You’ve probably seen “growth hacks,” where brands offer everything from discounts to cash rewards when you share a product or service with people in your network. Companies have picked up on the fact that more than 80 percent of consumers in today’s market trust recommendations from individuals over brands. Consumers are looking more and more to friends and influencers on social media to learn about brands, products, and experiences. In fact, it is projected that in 2017, brands will increase their influencer marketing expenditures by more than 60 percent. Consumers are looking to share information and learn from one another, as opposed to directly from companies—and brands are beginning to react.
In the old days, billboards, magazines, and previews dominated advertising strategies as companies took a “splatter” approach to advertising: they found high-traffic channels and spent their marketing budgets on those channels. Today, as companies collect massive amounts of data on their consumers, brands are increasingly able to market to very specific groups of people. Platforms such as Facebook, Pinterest, and Instagram are a marketer’s dream. They provide companies with access to specific types of customers and collect data on those individuals based on their activity. For example, Facebook retargeting allows an advertiser to target people who visited its website with different messages, depending on where they stopped in the buying process. Retargeting tends to have a much higher success rate than advertisements targeting customers for the first time. It’s an obvious point, because retargeting is reaching a more qualified lead. These tools either didn’t exist in the past or were prohibitively expensive and/or harder to track.
Similarly, look-alike targeting has proven to be very effective in our experience of scaling and growing brands at M13. Platforms such as Facebook allow digital marketers to define their target audiences based on previous user behavior and to compare existing customers to the Facebook universe in order to find similar users. Other companies are following suit, including Pinterest, which has its own act-alike audience targeting options. By using such tools to target customers strategically, you will develop increased deliverability, higher performance, and less list fatigue.
What one considers to be cheap is of course relative, but the fact that mom-and-pop brands can now easily access specific customers and afford to advertise to them is a massive change in the marketing world. Whereas advertising used to be dominated by larger, well-capitalized brands, today smaller brands can afford to get their products in front of hundreds of thousands of qualified leads around the globe at a fraction of the historical cost and in much less time. The advantages in terms of capital efficiency and speed are tremendous, because getting your product or service in front of customers is no longer predicated on getting into retail or being able to afford prime advertising.
Today there’s more capital available for venture growth than at any other time in history. There’s actually over five times as much capital today earmarked for venture investment as there was in the late 1990s. Part of the increasing investment in venture capital is being led by “angels,” corporations and individuals who, through crowdfunding and other methods, make early investments in startup companies. Since angels have joined the venture capital game, they have poured more and more money into the VC industry each year. Starting in 2009, the US angel investment market grew from $17 billion to $24 billion. This abundance of capital has made it easier for brands to expand and grow while incurring significant operating losses, with the goal of scaling faster and acquiring market share. However, the abundant capital that makes the funding environment more favorable for entrepreneurs is also making the world much more competitive. It’s easier than ever to get out there but harder than ever to stick.
Such intense competition is the key reason why time is your scarcest resource. We can almost guarantee that if you’ve observed a market need, others have noticed it as well. As all entrepreneurs know, the faster and more efficiently you can get up and running and the quicker you can get your product or service to market, the more you can learn about your customers and their needs and the higher your odds of success.
We’ve all heard the adage that time is money, and in the startup world, that is particularly true. What entrepreneurs often fail to realize is that the cost of time is increasing. Even one month can make a big difference. Imagine that you test different messages and marketing campaigns on Facebook every day for thirty days: How much more will you learn than your competition that starts one month later?
Time is especially critical when it comes to raising capital. These days, if you don’t show fast growth, you’re not going to capture the attention, dollars, and imagination of investors. This is partly because investors see a lot of businesses, and they know how important fast execution is. They know that if you’re moving slowly, even with the best product or service, it’s much easier for others to copy you. They recognize that your time is their money—they’re investing in your runway to launch and scale. The longer you take, the more capital your business will need and the bigger your exit will need to be for anyone to make real money.
To understand this important point about exits and valuations, let’s take two companies: Company A and Company B. Both spend $100,000 per month and go on to sell for $10 million—a lot of money. Company A takes ten months to scale before being acquired, while Company B gets off to a slightly slower start, has trouble raising growth capital, but ultimately figures it out and is acquired after twenty months.
That ten-month difference makes a significant impact on the ultimate outcome. The internal rate of return, or IRR, is a key metric used by investors to measure the profitability of investments over time. With both companies burning through $100,000 per month and being acquired after ten and twenty months, respectively, for the same purchase price, what’s the difference in IRR? Almost sixteen times. Company A’s IRR is 5,730 percent, while company B’s is only 366 percent. IRR isn’t important just for investors; it’s important for you.
Before you start to move quickly, however, it’s essential to consider whether you’re the right person for the job of a founder. Although we loved starting a company and experienced it as both exhilarating and rewarding, this line of work is not for the faint of heart. We don’t want to discourage you from building your dream, but we do have to warn you in advance that it is not easy.
The following are our top two reasons not to do it. We like to present them up front so that folks can really see what they are getting themselves into. Preparation is everything; going in with your eyes wide open will only make you better at what you do. We suggest that you pay close attention to the way these factors make you feel. Does your inner voice whisper, “Hmm, I’m not sure I want to do this,” or are your competitive juices flowing?
“Can” and “should” are two different things. Entrepreneurship is not a gene that you are born with. If you are an entrepreneur, you have to want to be one, and want it really badly. Whether you’re naturally personable, smart, or hardworking or none of the above, if you want to be successful in the startup world, you need to cultivate the following six factors and chase down the ones you don’t innately have. If you’re willing to do so, you are one of the people who “should” be an entrepreneur. You need to be:
Despite the glamour that society builds around entrepreneurship, it’s a ton of work, and the journey is a roller coaster. Though when you are a founder there are moments that make you feel on top of the world, there are twice as many moments of failure. You need to be able not only to roll with the punches but, more important, to get back up after you’re knocked down. Being optimistic and maintaining a positive outlook are mission critical. When we started VEEV, we took a ton of risks in terms of both money and time, but we knew deep down that we would eventually make it work. We like to call this being “long-term greedy”: you make tough decisions in the moment in order to reap larger benefits in the future.
Although much has changed in today’s world, being an entrepreneur hasn’t become any easier. This job has always involved resiliency and giving 110 percent. After all, the entrepreneurial mind-set is that every moment you spend not making your company or product better is a moment when competitors are catching up. You must have high energy—and be able to channel that energy to achieve business milestones. You lead by example, and demonstrating high energy and focus will encourage your employees to strive to do the same. It’s an indication of how passionate you are.
Any business venture, no matter the industry or stage of a company, involves risk. As a founder, not only do you have to be comfortable with taking risks, you have to constantly calculate the risk of each decision you make. Whether it’s selecting a distributor or deciding whether to raise money, any decision you make has future implications. When we left Goldman Sachs to be entrepreneurs, many of our friends and colleagues questioned the decision: Why leave such an established firm and what seems like a safe path to a successful career to enter a world of unknowns? That is a reasonable question to ask. Although we often joke that “we were just young enough and just stupid enough to leave Goldman to become entrepreneurs,” we were also interested in taking a risk, provided it was a thoughtful and strategic one.
There’s no “That was easy” button for entrepreneurship. We have yet to meet a successful person in our industry who’s not failed before. You have to be able to recover from being wrong, from losing, from striking out, and keep on going.
When we first produced VEEV, an açaí-infused spirit based on vodka, the product had the slightest yellow tint to it, which quite honestly surprised us. Over the subsequent weeks, as we started to sell VEEV to our first accounts, we noticed the color continuing to build, until it eventually looked more like lemonade than vodka. We debated a formal recall. But we weren’t yet in millions of doors; we were still self-distributing. In order to work through what felt like a major obstacle at the time, we took a two-pronged approach: sell the existing product that we had on hand while simultaneously tracking down the root of the problem. Both of those were significant challenges—we knew the product wasn’t perfect, and finding the problem was hard—that could have ended our company’s progress before it even started. But we’re proud to say that we did both with enough aplomb to live to fight another day, which is actually more important than getting every decision right.
Find a piece of paper and a pen, or take out your phone and open up a blank note. Think about an entrepreneur role model. Write down the top five words that come to mind when you think of that person. If we were gambling men, which we are, we’d be willing to bet that the words “inspiration” and/or “visionary” are on your list.
That’s because the best founders see something that no one else sees, rally their troops around the vision, and take their teams on a journey that no one else would have imagined could or would be possible. When it comes to beverages and consumer packaged goods, from KeVita to Krave Jerky, we try to spot opportunities coming and be in a position to capitalize on them. That is how we started VEEV, by seeing an opportunity in the vodka space that no one else saw and jumping on it. The ability to recognize market trends and to vividly paint a picture of the future is what separates mediocre and/or lucky founders and investors from those who are consistently successful. We once heard Tony Robbins say something about this we liked. We don’t recall the exact words, but the gist is: See the world as it is, not as worse than it is. See the world as you see it; make the world as you see it. In many ways, this sums up the job and challenge of the entrepreneur: to be visionary enough to see a better way of doing something but to ground that vision in reality enough to make it happen. Easier said than done!
As you have probably heard, being an entrepreneur means you have a part-time job as a salesman or saleswoman. To be honest, it’s not really a part-time job—as a founder, you must constantly represent, talk about, and, most important, sell your company! This may sound like a difficult task, but at the heart of it is being persuasive.
According to one of our favorite philosophers, Aristotle, there are three pillars of persuasion: ethos, pathos, and logos. Ethos is an appeal to ethics, and it means convincing someone of your credibility. Pathos involves appealing to the listener’s emotions—creating a feeling response. Logos is persuasion by reason. Whether you are speaking with investors, employees, or distributors, you should constantly try to get as many people on board as possible using these pillars.
With VEEV, we used all three. We developed relationships, earned trust, demonstrated goodwill, exuded passion and confidence, never accepted defeat, built our business with sound financials, and sold others on our vision. If you master these elements and combine them effectively, you will leverage your persuasive potential.
Do you work for a large company, a nonprofit, or a government organization and have an entrepreneurial mind-set? Are you able to think creatively within your current role? Though traditional advice might be to quit your job and start something, maybe staying put would be a better move. More than ever, institutions need people with an entrepreneurial mind-set to operate within the larger framework of their companies to create new products, processes, and platforms. Hence the rise of the intrapreneur. Across sectors today we are seeing this trend, where attempts to foster innovation are occurring internally. Those who succeed in this type of role will likely be rewarded. Entrepreneurial action and leadership are certainly not reserved for startup founders. Take Los Angeles mayor Eric Garcetti, a quintessential example of entrepreneurship applied in a less traditional context. Mayor Garcetti has applied many of the concepts in this book—from pivoting to find solutions that work to gaining buy-in with heart-based momentum to initiate change and attract talent—during his tenure as mayor. He epitomizes our belief that intrapreneurship can be a powerful mechanism for improving people’s lives, whether they are your employees, your customers, or your constituents.
Another example of fostering intrapreneurship is Adobe’s Kickbox initiative, through which any Adobe employee with a product or idea can receive a $1,000 prepaid credit card and participate in a two-day innovation workshop to develop and test out his or her concept. Adobe employees are sent a “red box,” a physical box with tools and resources that encourages employees to define, refine, validate, and evolve their idea. If one executive within Adobe approves the idea, it is passed on to the next round of funding and development. Since its inception, more than a thousand ideas have been prototyped through this initiative. Obviously, not all companies make it as easy as Adobe does, but intrapreneurship may be the way to go.
Creating a successful company is not impossible—statistics say that 40 percent of startups receive funding. But the deck is stacked against you more than you know—only 10 percent survive the first year. And of those who succeed, most aren’t billion-dollar unicorns but ventures that are still slugging it out every day to keep paying the bills.
Here’s a reality check. The graph here shows how many companies make it to each round of VC funding. As you can see, it’s a very exclusive club. Fortunately, there are many successful companies that keep on chugging away without any VC money.
To put the odds of succeeding in the startup world into perspective, let’s look at the chances of making it to the NBA. The ratio of high school basketball players who make it to the NCAA is 1 in 35, or 2.9 percent; the ratio of NCAA players who are drafted to NBA teams is 1 in 75, or 1.3 percent. Thus the odds of an NCAA basketball player making it to the NBA are higher than those of getting five rounds of funding!
If you’re still reading, that’s a good sign! You’ve passed the entrepreneurial readiness test. That probably means you’re temperamentally and energetically suited for the job. That’s where we come in—we can’t give you the temperament, but if you have it, we can help you stack the odds so you end up in the 10 percent of folks who succeed.
Typically, success begins with a set of questions that you need to ask before you begin. If you already have a business, you should know the answers to them. If you don’t, now is the time to start. Get used to them—you are likely to hear them in one form or another when you go out for funding, even at the seed stage.
Are you building a business to IPO, sell, maintain a certain lifestyle, or keep in your family for multiple generations? We always ask entrepreneurs this question because it tells us a lot. Some people want to make $2,000 a month, while others want to IPO. Though the first can be accomplished on Etsy, the latter requires a more aggressive approach. It’s really helpful to start with the end in mind, although many first-time entrepreneurs fail to do so. We often see founders start something on the side that begins to take off, and they find themselves several years down the road with no clear idea of—or strategy for—where to go. Just wanting “a big IPO” is not a plan.
From what we have observed, most entrepreneurs try to determine the path for their company after it’s already up and running. We take a different approach: we help entrepreneurs set out a path from the get-go by reverse engineering from where they want to land.
For instance, if your goal is to make a few thousand dollars a month, you should probably set up your business with a variable cost structure, meaning your costs are tied to your sales, versus a fixed cost structure, where your costs are an up-front investment. In a variable cost structure, you pay a bit more for everything, but you can make something on every $1 of revenue you bring in. This approach means that less up-front investment is required, since you pay expenses as you go. If, instead, you’re trying to build a huge company quickly, you want a fixed cost structure, so that you will have capital reserves later when you want to expand and scale your business.
Entrepreneurs we speak with make this mistake all the time—they want to believe they’re the first to have an idea. It’s not that we don’t see new ideas, but we’ve talked with many entrepreneurs who think they have a unique idea until they do some research and find that at least five other folks are already in the space. That isn’t necessarily a bad thing. It’s extremely rare to have a truly original idea. Remember that Uber wasn’t the first ride-sharing company and Facebook wasn’t the first social media platform. Being first can be a huge advantage, but being the best is more important. Being the best comes down to finding the best product/market fit—something we’ll talk about throughout the book. CB Insights, an excellent source of startup research and data, reports that lack of product/market fit is one of the most cited sources of failure for startups today. If you’re truly the first person on the planet with an idea, are you creating something that people actually want or need? It’s possible that no one has executed the idea because there is no demand.
If you aren’t creating something new, you should understand what your competitor is doing well and what the secret ingredient is that you believe they are missing. Finding this ingredient comes down to differentiation. How do you stand out from the competition and why does this make you more attractive? There are various ways to differentiate, from price point to key features and packaging. For instance, when our friend Eric Ryan, the cofounder of the pioneering eco–household products company Method Products, launched his nutrition company, Olly Nutrition, he decided to differentiate his supplements in two ways: first, by creating better packaging than existing supplements had, which was similar to what he had done with Method; second, by formulating function-driven supplements: sleep, beauty, energy, and so on.
In addition to packaging and features, you may also want to consider price points and the quality of the competitors’ product and user experience. How is the competitors’ product performance, and what do consumers think about it? Brand is another possible differentiator. Though your competitors may offer an amazing product and price, if the brand is weak—name, packaging, marketing, reputation—maybe you can create a highly attractive brand to dominate the space. The point is, you don’t want to launch a product or service that is the same as what’s already in the market!
What makes you uniquely suited to doing this thing, and why is now the time to do it? Is the market ready? What are the barriers to entry? Do you have a head start on the competition? If you are trying to go big, is the market big enough, and how will the business scale? How much runway can you get before hitting a major roadblock and serious opposition? These are important questions that you should always consider. Think about what you are best at now, and let’s see how your answer evolves after reading the following chapters.
We’ve organized Shortcut Your Startup around each stage of a venture: Part 1, “Prelaunch”; Part 2, “Running the Business”; and Part 3, “Exiting.” In “Prelaunch,” we begin by suggesting you get into the trenches early on to investigate the space and gain valuable insights that will help you increase your odds of success. Then we have you consider your overall business strategy and how to fund it. In Switchup 3, we help you differentiate your company to get a leg up on the competition once you’re up and running. In Part 2, our Switchups focus on the day-to-day running of the business. Switchup 4 makes a case for why you should specialize through partnering and outsourcing. Switchup 5 helps you think about iteration and pivoting based on what you are learning from customers through our unique lens of a “diversified focus.” Then we get more granular and tactical, teaching you our milestones approach to operational efficiency in Switchup 6; the importance of nailing your product/market fit, operating systems, and customer acquisition costs before scaling in Switchup 7; how to accelerate success through testing rigor to employ the forces of magnification in Switchup 8. We conclude this section with a deep dive into building a strong brand to win the hearts of employees and customers through a sound mission and great storytelling. Then, in Part 3, we give you our perspective on how to set yourself up to exit successfully.
We encourage you to read the whole book, no matter where you are on your startup journey. Much of what we are offering is a paradigm for thinking about startup growth and execution, and we want to make sure you have the full perspective. For instance, how you think about an exit, Switchup 10, has implications for decisions you make right from the start. And even if you’ve already been in business for a few years, Switchups 1 and 2 might impact your thinking about a pivot or a restructuring that could accelerate your company’s growth.
Each chapter features one Switchup, organized as follows:
By the end, you will be locked and loaded with our best perspectives, advice, suggestions, and stories to take the startup world by storm. And since time is your scarcest resource, let’s get started.
WE LEARNED A lot of these Switchups the hard way as entrepreneurs—and this Switchup is the perfect example. When we dived in headfirst with VEEV, trying to take our company from a startup to an established liquor brand, we had absolutely no experience in the liquor industry. We had no idea how complicated the space was.
Quickly we realized that successful entrepreneurs have a detailed idea of what they’re getting into because they get out there and investigate the market, the viability of the idea, the competition, the industry dynamics, and so on, before jumping in. We call this “getting into the trenches.” As soon as we figured that out, that’s just what we did. We rolled up our sleeves, sold our product out of the back of our Toyota Prius, and met face-to-face with distributors, customers, and bartenders. We just wish we’d done more of that discovery work in advance. We could have avoided various mistakes, including perhaps VEEV’s discoloration issue that we spoke of earlier, and been able to move faster, wasting less time (and therefore money) learning the basics. We might have even decided it wasn’t the right idea for us.
Though unforeseen obstacles and hidden traps exist in any endeavor, getting into the trenches early will save a lot of headaches down the line. (As a quick aside: Cliché as it might sound, take your team to a Spartan Race or Tough Mudder. These fun and increasingly popular obstacle course races are great entrepreneurial training grounds—one obstacle after the next, each testing your mettle in a different way.) As an entrepreneur, you must minimize the number of unknowns and navigate your team around the traps to the best of your ability. Conventional wisdom says that this is done in the boardroom, setting a strategy. Our experience tells us that it is best done on the front lines, learning as much as you can before you make a big investment of time and money.
Even just a few years ago, there was less competition in the startup world, which meant that entrepreneurs had the luxury of setting strategies and slowly tinkering as they perfected them. This is no longer true. As one example, in the graph below you can see how the rate of consumer adoption is increasing every decade.
Look, for instance, at the rate of adoption for the telephone versus the cell phone. The extreme contrast is an example of how we’re in a much less forgiving startup ecosystem these days. If your competitor hits it with a product, it is now able to get it in front of tens or hundreds of thousands of people in the same amount of time it would have taken in the past to get in front of thousands. The shorter rate of adoption today is what leads to a faster separation between startup winners and losers. And this is happening in an ever more crowded space. Competition is so tough that, whatever your idea, you can be sure there are a few other folks working on it, even more thinking about it, and thousands who will jump in as soon as they hear about it.
The consequence? There’s less time to meander. Since businesses can get their products in front of so many customers using digital tools and those customers are sharing their positive and negative experiences via social platforms, the consequences of being slow are massive. The good news is that the impact of getting it right is of an equivalent magnitude. With a solid product/market fit (PMF), you can reach more customers for less than ever before. To do so, you have to learn faster and see patterns sooner than your competition does. We believe this is best done by getting as close to the product-customer interaction in person as early as possible.
That’s what this Switchup is about—focusing on the insights you can generate into product/market/timing fit when you get into the trenches early. We include timing with PMF because you can produce the right product for the right market and still fail because you land at the wrong time. If customers aren’t ready for what you have to offer, you’re going to spend massive amounts of money trying to acquire users in an unsustainable fashion. Though we advocate rapid execution, it’s possible to be too early into the market.
The trench approach will help you save time and money, and produce the kinds of insights you need to succeed. If you’ve launched before doing this deep dive, you can still get out there now, armed with our ideas of what to pay attention to.
An acquaintance of ours epitomizes this Switchup. He was working at Goldman Sachs when he had an idea to do a fast casual restaurant, an Italian version of Chipotle. Traditionally, he would take one of two approaches: spend months or years researching to understand everything about the market, where to start, and what cash flows might look like; or, as a brash ex-banker, find some capital and jump right in.