Dharmesh Shah


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5 Mistakes Every Startup Founder SHOULD Make

By Dharmesh Shah on June 2, 2014

“It’s fine to celebrate success but it is more important to heed the lessons of failure” - Bill Gates

Much digital ink has been spilled trying to caution startup entrepreneurs against making mistakes. Type "mistakes entrepreneurs make" into Google and you'll find thousands of articles, sternly forewarning against the most prevalent pitfalls and errors that stand between you and your startup's success.

But wait a second. How many times have you heard "We learn from our mistakes"? As an entrepreneur and investor, I've definitely made some doosies - and if my experience is any indication, not only do we learn from our mistakes, but we learn much more from our mistakes then from our successes.wrong-decision

Then why try so desperately to avoid them? Call me contrarian, but I'd argue that well-positioned mistakes can be quite worthwhile, and should even be encouraged.

So here's an initial list of mistakes that you SHOULD make as a startup founder. Mistakes that are bound to happen anyway. Mistakes you will learn so much from that you'd best make them as early in your entrepreneurial journey as possible. I've also included some recommendations about what to do after you make each mistake.

1. Get Screwed

It's inevitable. Someone - your partner, co-founder, employee, investor, or any other character in your unfolding plot - will mess you over. Someone will break your trust, violate a verbal or even written agreement, cut your compensation, or try to steal your equity or destroy your whole company (or all of the above, if you're me). Someone will do something stupid to scuttle your grand plan.

Accept the inevitable, steady yourself now for the oncoming blow, and just hope it doesn't hurt too much or cause too much damage. A startup is usually an odd mix of people (idea people, tech people, investors and others) thrown together by fate and circumstance in pursuit of a distant, moving target. As clearly as you think you see that target and the path and steps toward it, somebody else will see that path differently or may have a different set of scruples or incentives. That will create friction, and depending on the power balance between everyone involved, can result in someone - maybe you - getting screwed.

Post-Mistake Action: You're thinking, "Why is getting screwed my 'mistake?' I didn't do anything wrong." Look in the mirror. Upon reflection, you'll likely find that what enabled your misfortune was something you did or didn't do. The screwer-screwee relationship requires at least two people, and there are two sides to every story. Even if you clearly weren't "at fault" - you encountered a terrible, crooked person who did you in - you still need to ask yourself how you allowed yourself to do business with that person. Was the person's action foreseeable? Did you do your due diligence on your partner/employee/investor? What did you do or not do that exposed you? As George W. Bush famously said: "Fool me once, shame on you. Fool me twice… shame on…. we can't get fooled again!" (cue The Who). Having been burned once, you'll be much more careful in the future about compromising your principles or allowing yourself to do business with people who may take advantage of you later on.

2. Seek Revenge

This is an adjunct to the above mistake. Once bitten, your natural impulse may be to bite back. You've lost something - tangible, emotional, some future upside or all of the above - and you want to deny the perpetrator those same things or at least the satisfaction of having caused you that loss. You've been wronged, and your reflexive urge is to right the wrong by wronging back.

Go ahead, try it once. I predict that not only won't you be successful, but most likely nothing will happen at all, or worse, it will bounce back at you. If you got screwed, that probably indicates you don't have the leverage, power or ability to exact meaningful revenge anyway. You'll just feel immature, cheap and dirty and the lingering recollection of that bad feeling probably will be enough to prevent you from playing the revenge card again.

Post-Mistake Action: Look forward, not back. The objective of the startup game is to win, and two losses don't equal a win. Rather than dwell on the past, "Revenge it Forward." Your best revenge is going to be your own success. Use what happened to you as an additional driving force, a motivator to prove to yourself, the person who messed you over, and the world, that not only do you deserve better, but that you can achieve better.

3. Tell People Your Venture is in "Stealth Mode"

It's natural to want to keep your cards close to your vest. Perhaps you're afraid someone will steal your idea, or you lack confidence that you've developed it well enough to convincingly describe it to others. The tech industry has even provided you the gift of a cool-sounding cover: "Stealth Mode," which makes you sound more like a covert spy shrouded in secrecy than an unsure rookie plagued by insecurity.

Saying you're in "Stealth Mode" is almost certainly a mistake, for many reasons. First of all it can easily be interpreted as either pompousness or insecurity, which is bad for your credibility. You're also signaling that you don't trust that person, creating a negative feeling that will likely persist even after you're able to elaborate later on. Most importantly, though, you are missing out on potentially invaluable opportunities to use your own network to shape, develop and advance your product or venture. Every person you know, meet or speak with can be a key to your venture's ultimate success.

Post-Mistake Action: Switch to "Get Out There" Mode. You never know who may be a potential customer or investor for your awesome new product, or more likely, who may know someone who could be a customer or investor. There are ways to plant the seeds of curiosity, to scout out a territory, to indicate what market you are targeting, without giving away the store. As Steve Blank advocates, it's critical for the founder to "get out of the building" (physically or virtually) as early as possible, and to start getting feedback from live people very early on and keep iterating based on feedback. By keeping everything a closely-guarded state secret, you are squandering opportunities to connect with people who might ultimately help you achieve Product/Market Fit, partner with you or invest in your venture. Come up with a "teaser" line that tells people enough about what you're working on and who you're targeting to pique their interest, generate confirmation of market problems and pain points, and generate future interest or relevant contacts.

When I founded EverMinder I was happy to discuss it with just about anyone long before it was fully developed. I got great feedback that led me to our first three angel investors, all via referral, all before we launched.

4. Believe that "If You Build It They Will Come"

The problem with the movie "Field of Dreams" is that it planted the phrase "If you build it, they will come" firmly into the common parlance and specifically, into the heads of countless, impressionable startup founders. The popularity of the phrase (and its confirmation in the movie, when Costner builds "it" and "they" magically come) leads some founders to believe, and predict to investors, that they, too, need only to build their amazing new thingy, and the users will come running until the rest looks like a hockey stick.

The problem is that as opposed to ghostly baseball players in Hollywood movies, I can assure you that if you just build "it", "they" will almost certainly not come. In startup theory the "coming" of "they" is called "Market Pull" which almost never happens by itself, even among early adopters. Market Pull needs to follow an intense and iterative period of product design, customer development, Product/Market Fit and hands-on "Technology Push" into the target market, which only if successful begets the glorious Market Pull. You'll have to work hard to make the market notice and care, and probably personally engage your early users individually, and that's fine. If you've hit Product/Market Fit squarely, "they" will eventually come, but only after you've very actively recruited and engaged your early adopters.

Post-Mistake Action: Stop believing stupid movies. If you've quoted "if you build it they will come" then you don't understand enough about Technology Push and Market Pull, customer development, and developing your Minimum Desirable Product. Instead of watching movies, read. A lot. You need to learn about these concepts by immersing yourself in the writings of Steve Blank, Sean Ellis, Andrew Chen, this very blog, and the other great proponents of effective product and customer development, and get up to speed fast.

(Ok, if you're still looking to be inspired by a movie, then watch The Pursuit of Happyness. Listening to voices in a cornfield will get you nowhere. Perseverance in the face of adversity, hustle, understanding and caring passionately about your product and customers, and relentlessly pursuing your goals will give you a shot to win.)

5. "My Favorite Mistake"

This mistake is probably my favorite because, like the Sheryl Crow song, it's complicated. It's the mistake I continue to commit most frequently.

My favorite founder mistake is not appropriately balancing confidence and humility. There's a yin/yang relationship between the two and as you pilot your rocketship forward, you will occasionally find that you’ve leaned too hard to one side or the other.

As a startup founder you need to have a healthy dose of self-confidence. Ok, maybe an unhealthy dose. An overdose. You need to passionately believe that your solution is The Next Big Thing. But overconfidence can be extremely dangerous, for many reasons. It can be misinterpreted by others as arrogance, which can cause damaging interpersonal consequences. If overconfidence morphs into false confidence, It can cloud your vision or your analysis. A great founder must have just as healthy a dose of humility, an understanding of his or her relatively small place in the world. But being too humble can hold you and your venture back….

A great Talmudic sage once wrote "Every person should have two pockets, each with a reminder note that he should refer to in the appropriate circumstance. In one pocket should be a note with the phrase: 'The world was created just for me.' In the other pocket should be a note that reads: 'I am like the duct of the earth.' "

(Five bucks says that's the first time Sheryl Crow and a Talmudic sage were mentioned together.)

Post-Mistake Action: Unfortunately I don't have a clear "post-mistake" recipe for this one. Managing your self-confidence and humility is a push-and-pull balance exercise that you have to keep performing, every day. It's up to you to gauge each circumstances and determine which reminder note applies.

Now that I'm an early-stage investor, I meet with entrepreneurs eager to convince me that they (and their ventures) are awesome. That's great. But I don't want entrepreneurs to sugar-coat their backgrounds. I expect and want them to tell me about their mistakes and failures. I want to hear what they've learned (and also that they've made those mistakes already on someone else's nickel, not mine). A good entrepreneur wants to talk about their mistakes as well as their successes, and a good investor wants to hear about those mistake and lessons without penalizing the pitch.

It's cliché, but nobody's perfect. You're not perfect. Mistakes will happen, and you will make your share. Expect them, embrace them, and analyze them, as those mistakes and the lessons learned will become important, lasting building blocks in your personal development and the development of your company.

So get out there, make some mistakes, learn from them…. And win.

This was a guest post by Ben Wiener (@BeninJLM). Ben is a startup founder and is Managing Partner of Jumpspeed Ventures, a Jerusalem-based micro-fund that invests in early-stage startups.

Topics: guest strategy
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Hiring Employee #1 At A Startup: Expectation vs. Reality

By Dharmesh Shah on May 12, 2014

This is a guest post by Jenn Steele.  Jen is the Head of Growth at RecruitLoop, an online recruitment marketplace based in San Francisco and Australia. Previously of Amazon and HubSpot, Jenn is passionate about growing humans and companies, working out, and wine. Follow her @jennsteele.

I fired the first person I ever hired.

I didn’t expect to have to do that. I expected that I’d be building my team with this person at my side. I expected this person to add value from the get-go. I expected that this would be a long-term professional relationship.hired-fired

Reality, however, was different.

The reality was that I hired someone who didn’t have the aptitude, the technical skills, or the attitude that I needed. He wasn’t a culture fit, either. He didn’t fit in our fast-paced environment at all, and started growling at people in the morning rather than saying “hello”. All told, it felt like a total disaster.

My second hire was a very different story. We worked together for more than five years, remain good friends and wildly respect each other’s abilities.

Fast-forward a few years, after stints at HubSpot and Amazon, I became RecruitLoop’s first hire. The company spent two years in Australia as just four co-founders and the occasional contractor, and then expanded to the US with me (and, now, a bunch of others). In the process, we all learned a lot about hiring that first employee - especially that expectations and reality were occasionally far apart.

Here are the six things that surprised all of us.

1. Co-founders rarely agree on who and what they need.

If you’re a fan of unanimous decisions, stick to a single founder. Inevitably, two or more people will have a difference of opinion. Even if you all agree that you need a developer, you’ll probably disagree on whether they should be remote or local and the number of years of experience they should have. Prepare to disagree and make the time to hammer out your differences.

2. The perfect person doesn’t exist.

Perfect only applies to Disney characters and your imagination. Remember hammering out the differences in your employee requirements? Now you have to be prepared to compromise some more since the perfect person just doesn’t exist. Break down your collective wishes, hopes, and dreams into deal-breakers versus nice-to-haves. Then rank the deal-breakers. That’s the best way to figure out where you’re willing to compromise (and where you’re not).

And be prepared to shift your priorities as you interview candidates. You might fall in love with someone who violates a deal-breaker. It’s either time to flush that candidate or reconsider that deal-breaker (some deals are meant to be broken).

3. The ideal hire will be willing to work for what you’re willing to pay.

When I was looking to leave Amazon and get back into startups, RecruitLoop and I fell in love (erm, professionally, that is). And then we discovered something a bit awkward: my salary (which was low for Amazon and less than I’d made elsewhere) was not even in the ballpark for them. And what I was initially willing to drop to - especially given my move from Seattle to the Bay Area - was still out of the realm of possibility.

You know why I work at RecruitLoop now? We all stretched in ways we didn’t want to. Our CEO negotiated with all the co-founders, and I had to do some pretty heavy negotiating at home (including agreeing not to buy shoes for a year) before we came up with a deal we could all live with. Going through all of the negotiations gently enough to ensure we all still wanted to work with one another in the future was a difficult art to master.

Get ready to stretch for anyone with a bit of experience - and hope they stretch back. You might have to walk away if you just can’t afford them.

4. Management isn’t what you need right now.

The first employees at HubSpot were developers. The first employees at RecruitLoop were growth and support. You know who the first employees weren’t? Middle managers, people who couldn’t GSD, or folks who were more concerned with their careers than with the company.

At a shiny new startup, the last people you want to hire are really good middle managers. Folks who are rockstar individual contributors? Absolutely. High level strategists who are startup junkies and can GSD? With the right vetting, sure. But really good middle managers fail at the two things you need the most: rapidly getting stuff done and pushing the company forward.

Yes, planning for the future is mandatory, but you can always hire managers later - when you need them. If you don’t focus on getting the people who can get your company off the ground through the door first, there won’t be a future to plan for.

5. There’s a LOT more institutional knowledge than you’d expect.

You’ve been in startup world. You might have been closeted in a small room with your co-founders for months (or years) trying to get to the point where you could hire your first employee. What you don’t realize is just how well you know each other as a result of this high-stress, startup-speed scenario.

What you forget at first is that your first hire wasn’t in that small room with you. She doesn’t know not to talk to your CEO before his first cup of coffee or that your CTO doesn’t drink. Your first hire has no clue how to get product specs to the CTO because you’ve always done it via email. Your first hire is completely clueless about your personal lives, so that first team dinner is pretty bewildering.

You’ll never be able to open up someone’s skull, pour in the institutional knowledge, and then seal it back up (although that would be easier). There will always be a ramp-up period. You can cut the ramp-up period in half if you have some initial onboarding conversations that go through everyone’s working style and the history of your sacred cows.

You just have to be patient and actually explain yourself when you have a “cryptic” conversation. You’ll know you need to explain by the befuddled look on the new person’s face.

6. Nothing is forever.

You might not hire the right person. You might have to fire your first hire in the first month or two. Your first hire might be great until you hit 30 people. Or 100. Or 1000. But then they’ll just have to go back to being a startup junkie (or start sucking enough that you have to fire them). Or maybe someone’s spouse will get a job across the country. Whatever happens, this first hire probably won’t stay forever.

But that’s okay. Your first hire won’t stay forever. You might not stay forever. But with the right person, you can still work together now to build an awesome company.

Now that we’re hiring into the double digits (no small feat for a startup) our expectations are actually starting to align with reality. We’ve documented some processes and institutional knowledge, and I (employee #1) feel fully integrated into the core team. We had to get our heads out of the Disney clouds and ground our hiring practices here on earth. That first new hire changes everything!

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