I have never shared this story before, but three talks I heard recently have given me enough courage and inspiration to do so:

(1) Jensen Huang’s discussion of his. humble beginnings with washing dishes at Denny’s

(2) Tim Ferriss podcast episode with Andrew Huberman where he mentions a fight in July 1994 that turned his life around

(3) Robert Downey Jr.’s Oscar acceptance speech where he thanked his “terrible childhood” for his accomplishments

Back to my fateful encounter with that dog…

It was a Friday evening in 1988 in San Fernando Valley, Los Angeles, a few months after my family had immigrated to the US as refugees, having left our war-torn home country Iran in 1983 and bouncing around the world for 6 years knocking on every door to get a visa to the promised land of opportunities.

By the time the miracle happened and we got off the plane in LA, we had depleted all our savings. While food stamps barely covered groceries for our family of 6, the cash support we gratefully received from the government was not enough to cover the rent for our 1-bedroom apartment.

So, as the eldest child in the family (15 year-old 9th grader), I did what every other child in that situation would do and looked for a job during my “free” weekday evenings and weekends.

But I barely spoke English and didn’t have any real work experience to talk of.

Through a generous family connection, I got a job as a Host at a Denny’s 4 miles away.

Since we didn’t have money to buy a car, we bought a used bike as my ride to/from work. And then we scraped every penny left in our pockets and under mattresses to buy a pair of black dress pants as it was mandatory part of the Denny’s “uniform”.

Those pants cost a full day’s income, so after my bike, they were the most expensive item I owned.

At least, until they met that dog.

One evening after work as I was biking hastily on the sidewalk to get home before dark, I was chased by a big, black dog who finally lounged at me and tore off one leg of my pants from knee down. But before he could come back for the rest, he was called away by his owner.

I turned and followed the dog to demand that the owner pays for my pants.

But as I approached that house, I saw a few. men come out and look even more aggressive than that dog. They started shouting.

Despite my unbelievable rage, I quickly turned around and resumed biking towards home at an even faster pace, willfully ignoring my bleeding leg and torn pants.

In those moments of utter desperation and despair, I wowed to do all I can to never. find myself in that desperate situation financially. So I doubled down on my school work to make sure I get into the best college possible. Education seemed to be the only key to the gates of the land of opportunities for an immigrant child.

So, thank you Denny’s and thank you nameless dog!

While bigger private funding rounds and massive valuations are celebrated as a validation and/or milestone achievement in the startup community, in reality they are often a Faustian bargain and set entrepreneurs up for failure.

Instead of raising as much money as you can for the highest possible valuation (a cultural byproduct of the VC “Power Law” dynamics I recently wrote about), focus on becoming capital efficient and raise as little as possible.

Many successful startups never raised venture funding or did so quite judiciously. For instance,

• MailChimp (acquired by Intuit for $12B) never raised any outside capital
• Lynda (acquired by LinkedIn for $1.5B) only raised growth equity after its 18th year in business
• Shopify (went public with market cap of $98B as of March 2024) raised their first venture round 6 years after founding
• WhatsApp raised less than $60M before being acquired by Meta Facebook for $19B.

Here’s why you too should raise less capital:

1. Minimize Unnecessary Dilution

With each round of financing, you give away ownership of your startup. Thus, the more you raise, the more ownership you give up. Many founders end up owning less than 10% of a startup by the time Series B or C rolls around. This dilution both erodes your control over the destiny of your startup and reduces your upside in an exit event. Reduction in ownership percentages can also reduce motivation and the sense of ownership among your team, sapping power away from the very engine of innovation in your startup.

2. Cultivate Discipline and Efficiency

Operating with less capital forces you and your team to scrutinize every expense, prioritize your most promising projects, and stretch every dollar. This lean approach fosters a culture of discipline and efficiency, encouraging innovative problem-solving and focusing resources on what truly moves the needle.

History is replete with examples of empires stretching too thin, crumbling under their own weight. Startups are no different. Limited resources compel ingenuity and resourcefulness. WhatsApp, with a modest team, managed to connect billions. Your startup’s constraints are not shackles but rather a crucible, forging a lean, focused, and resilient enterprise.

3. Avoid Premature Scaling

An abundance of capital can tempt you to scale operations before your product or service is fully ready or before you have even reached product-market fit. This premature scaling can lead to wasted resources and potentially force you to grow in a direction that is a ultimately a dead-end. The more capital you raise, the more committed you become to a specific course of action (i.e., the plan that you pitched to investors), making it harder to pivot if needed or even keep your confirmation bias in check to stay grounded in market reality. By raising less, you’re more likely to remain open to experimentation and growing at a pace that’s sustainable and aligned with market demand, ensuring a stronger foundation for your business.

4. Prevent Inflated Valuations

A hefty funding round can lead to an inflated startup valuation, which might seem advantageous at first glance. However, this can become a double-edged sword when attempting to raise future rounds of funding or when setting option pricing for employees. An unrealistic valuation can deter future investors and complicate your financial strategy, hindering your ability to attract talent and secure additional capital.

A valuation grounded in reality is not a constraint but a clear-eyed assessment of where you stand, guiding your path forward with integrity. An inflated valuation, much like a mirage, offers a false sense of progress. Many of the roughly 900 current unicorns face challenges with raising capital after their Covid-era sky high valuation, highlighting the difficulties in meeting inflated expectations in subsequent funding rounds and operations.

5. Maximize Exit Options

The amount of capital you raise directly impacts your exit options. Companies burdened by high valuations and significant external investment find themselves with limited exit opportunities, as they need to achieve a much larger exit to satisfy their investors’ expectations. The more money you raise, the smaller the universe of potential acquirers becomes.

By being prudent with your fundraising, you keep a wider range of exit paths available, from financial to strategic, that might not require a blockbuster sale price. So, when your competitors raise a lot of money, don’t necessarily be dismayed, as they may have done you a favor by leaving you as the most attractive and actionable acquisition target in your space.

👉 As an entrepreneur, it’s essential to challenge the conventional wisdom that more capital at highest possible valuation is always better. By understanding the benefits of raising what you need — no more, no less — you position your startup for long-term success. This approach requires careful planning, clear-eyed assessment of your needs, and the courage to focus on building value rather than chasing after the next funding round.

Positioning-Audience Fit (PAF) is what Oscar winners and successful startups have in common, not Product-Market Fit (PMF).

The 10,000 members of the Motion Picture Academy choose the Oscar winners based on how well the message of those movies resonates with them [listen to NPR Planet Money’s March 8, 2024 podcast episode for details].

There are many great movies made each you year (over 4K annual theatrical releases globally according to one source), but if they don’t position themselves the right way with the voting members, they may not even get nominated despite their intrinsic qualities as artistic creations.

🌟The winners stand out not by shouting louder but by superior PAF, being distinctly different in the right way.🌟

Oppenheimer is not just a biopic about a brilliant scientist or even the creation of the atomic bomb. It is about coming to terms with god-like powers of innovation and technology and their impact on the future of humanity.

Barbie is not just about a doll’s adventures between real and imagined worlds. It is about breaking societal molds and pre-defined roles.

The Holdovers is not just about a teacher-student interactions in a 1970’s boarding school. It is about the transformative power of mentorship, understanding, empathy, and learning from unexpected sources.

The nominees and winners connect with timeless themes of human condition, as well as palpable and immediate topics that need our attention, as was the case with the first Ukrainian Oscar winner 20 Days in Mariupol.

Just as in Hollywood, in Silicon Valley every new startup (is vying for attention: attention of investors, top talent, customers, partners, acquirers, etc.

Yet, attention is a scarce commodity.

Therein lies the PAF lesson:

👉Positioning is not about being everywhere; it’s about being in the right place, in the right mind, at the right time. It is about winning the hearts and minds of your audience.

The market, much like the Oscar voters, craves solutions that resonate personally and profoundly. The challenge is to present your solution — your story — in a manner so compelling that it feels just right.

You may have amazing PMF, but unless you package it with the right positioning (PAF), few would even try your product.

If there were an algorithm for PAF, it would look something like this:

1. Identify the core of what makes you truly different (this is harder than it sounds),

2. Understand deeply who cares about that difference (your audience is narrower than you think), and

3. Communicate that difference in every aspect of your product and story (consistency is key).

👉Remember: your ability to position yourself distinctively in the hearts and minds of your audience can turn your aspirations into achievements.

Position wisely, stand out brilliantly!

Last week I highlighted that as entrepreneurs we are particularly susceptible to cognitive biases that distort our reality, subtly steering our startups off course. While awareness of these biases is a great first step, much more than simple awareness is needed to guard against their pernicious effects.

To that end, here are 7 actionable everyday strategies to help you keep these common biases in check so that you can make better decisions:

1. Seek Diverse Perspectives

Great minds may think alike, but they think best when they come together. Many studies have shown that diverse perspectives are not just beneficial; they’re essential as they encourage dissent, tease out contrarian views, and let the synthesis of ideas guide the path forward.

Why It Works: Confirmation bias leads us to favor information that aligns with our existing beliefs. By actively seeking out diverse opinions and perspectives, we can challenge our own assumptions and expose ourselves to different angles on a problem.

How to Implement: Encourage team discussions where dissenting views are welcomed. Make sure everyone in the meeting is heard (dissenters typically prefer to stay quiet). Consult with a varied group of stakeholders before making major decisions. For very important decisions, consider having a structured offsite brainstorming session (as I detail in Exit Path) and assigning a “red team” to deliberately act as the devil’s advocate to stress test your assumptions.

2. Lean Into the Growth Mindset

To overcome cognitive blindspots, embrace intellectual humility. Promote a culture of curiosity, where learning from mistakes is celebrated and effort and following the right process is valued.

Why It Works: When we acknowledge the limits of our knowledge and internalize the fact that skills and understanding can be developed with effort, we open ourselves up to learning and improvement, to avoiding snap judgments and replacing them with proper process and due deliberation.

How to Implement: Promote a culture of continuous learning within your team or organization. Provide resources for professional development and encourage the sharing of new insights and knowledge. Create processes that support continuous improvement, from experimentation to data gathering and evaluation. Reframe failure as an opportunity to learn and turn obstacles into “obstacle courses,” as Maryam Banikarim put it beautifully in her 2023 TED talk.

3. Schedule Reality Checks

Unless you schedule it, you won’t get to it. And what is more important than to make sure you are still pursuing your mission and true North Star? Regular “reality checks” are thus vital.

Why It Works: Inertia, status quo bias, sunk cost fallacy, etc. often conspire to lead us off course. Regularly revisiting decisions and strategies with fresh eyes and renewed perspective helps to evaluate them based on current, not past, realities.

How to Implement: Schedule periodic reviews of ongoing projects and investments. Use these reviews as opportunities to assess progress and viability without the weight of past decisions influencing judgment. Be particularly mindful of the preference to continue a course of action because of past investments or fear of change.

4. Conduct Pre-Mortems

Our entrepreneurial optimism can blind us to many of the pitfalls ahead and render us strategically myopic. Considering why a particular strategy or course of action may not work before taking steps to implement it is a great way to combat that.

Why It Works: A pre-mortem — imagining that a project has failed and then working backward to determine possible causes — can highlight potential problems before they occur, countering optimism bias by creating some psychological distance and injecting needed realism into planning.

How to Implement: Before launching a new project or initiative, conduct a pre-mortem session to identify risks and vulnerabilities. Use the insights to strengthen your strategy and planning.

5. Establish Decision-Making Processes

Our intuition can lead us astray, guided by biases we’re scarcely aware of. Implementing structured decision-making processes can help. Google’s use of OKRs (Objectives and Key Results) is a prime example of a framework that aligns goals, ensures accountability, and mitigates the impact of biases.

Why It Works: Systematic decision-making frameworks can help mitigate biases by ensuring that decisions are made based on data and rational criteria rather than gut feelings or flawed heuristics that are prone to cognitive biases.

How to Implement: Develop and adhere to a structured decision-making process that includes steps for data gathering, analysis, and evaluation. Incorporate checklists to ensure that all relevant factors are considered.

6. Know When to Trust Your Gut

There’s a time for analysis and a time for intuition. As Apple famously demonstrated with the design of the iPhone, sometimes the relevant data doesn’t exist for breakthrough innovation. Develop an acute sense of when your experience and gut feeling should guide you, balanced by a willingness to pivot based on feedback and results.

Why It Works: While intuition can be a powerful guide, it’s also susceptible to error by numerous cognitive biases. Knowing when to trust your gut and when to seek more information helps balance between overthinking and recklessness.

How to Implement: Develop criteria or signals that indicate when a decision should be intuition-driven (in areas where you have extensive experience and expertise) versus data-driven (in all areas outside your expertise). Encourage reflection on past decisions to identify when intuition led to success or failure for continuous optimization.

7. Identify One-Way Doors

When making a decision, it is important to understand whether the consequences of the decision are reversible or irreversible, with very different levels of scrutiny demanded by each. Jeff Bezos elucidated this distinction and its practical implication in his 1998 shareholder letter:

Some decisions are consequential and irreversible or nearly irreversible — one-way doors — and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions.

But most decisions aren’t like that — they are changeable, reversible — they’re two-way doors. If you’ve made a sub-optimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.

As organizations get larger, there seems to be a tendency to use the heavyweight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We’ll have to figure out how to fight that tendency.

How to Implement: Before making significant decisions, assess whether they are reversible (two-way doors) or not (one-way doors). For one-way doors, slow down and require a higher standard of evidence and broader consensus.

👉 These strategies will help you stay grounded in reality while navigating the treacherous terrains along your entrepreneurial journey. Note that cognitive biases are particularly hard to detect because they mostly operate without us being aware of them, when we are operating on autopilot, when we may even feel we are in flow. Thus we need to implement rituals and processes that break the unconscious habits of our minds and awaken our senses to the actual reality around us.

Do you have any go-to strategies for overcoming blindspots and cognitive biases? Love to hear about them and any other feedback you may have. Look forward to continuing this conversation in the comments! 🙏

It’s high time we rewrite “Curiosity killed the cat,” the anthem for the reclusively risk-averse among us. At best, it is a misguided cautionary tale, and at worst, a toxic norm. It implicitly discourages inquiry and experimentation, which are at the heart of what drives creative and innovative endeavors.

Every time we tell someone “curiosity killed the cat,” we diminish their adventurous spirit vital in problem solving and entrepreneurship. In business, as in life, risk is a constant companion. To equate curiosity with peril is not just oversimplification; it’s a fundamental misunderstanding of what drives progress.

The Benefits of Curiosity (for Entrepreneurs)

For entrepreneurs, curiosity acts as both an engine and a rudder, propelling individuals towards their goals and guiding them in choosing what to work on.

1. Amplifies Learning: Knowledge is the currency of the entrepreneur. Curiosity breeds learning, and learning equates to survival in the ever-shifting business landscape.
2. Creates Joy of Discovery: A curious mind doesn’t just find problems; it revels in solving them. This is the essence of innovation — a relentless pursuit of solutions where others see dead-ends.
3. Supercharges Adaptability: Markets change, trends shift, and adaptability is not just a trait but a necessity. Curiosity fuels adaptability, enabling entrepreneurs to navigate uncharted waters.
4. Fuels Creativity: In the economy of ideas, creativity is king. Curiosity is the quiet force that pushes boundaries and uncovers new territories of thought and action.
5. Enables Empathy: Understanding the customer, the competitor, the collaborator, and even the counterpart to any negotiation — this is the undercurrent of successful business strategies. Curiosity fosters empathy, and empathy unlocks connection and collaboration.

Make yourself a big target for luck, and the way to do that is to be curious. -Paul Graham

Rewriting the Narrative

While in all endeavors caution is a given, it should never suffocate curiosity. There is a balance to be struck, a line to walk between recklessness and inquisitiveness. It’s not about avoiding curiosity for fear of risk; it’s about harnessing curiosity to navigate and mitigate those risks. (More on my thoughts on the relationship between risk taking and risk mitigation here)

Of course, there are those with such entrenched interests (such as dictators, Ayatollahs, monopolists, oligopolists, religious fundamentalists and the like) who would love to keep curiosity at bay. They stifle any change or progress by highlighting the dangers of inquiry and exploration, relishing the story of that one (1) very unfortunate cat who at some point in history made a fatal mistake and perhaps met untimely death because it sampled the wrong food or opened the wrong door. But the rest of us are far better served to think of all those other cats who use their curiosity to find clever ways every day not only to save themselves from a variety of dangerous situations (e.g., high tree branches, traffic, and predators), but also thrive and propagate the feline species.

👉 Curiosity is not to be feared, but celebrated. It is the spark that ignites innovation and drives the relentless pursuit of progress. Embrace the wonder, ask the questions, experiment, and delve into the unknown. 🚀

P.S. Want to cultivate your curiosity this week? Here are some tips:

• Ask open-ended questions.
• Step outside your comfort zone.
• Read books and articles on diverse topics.
• Talk to people from different backgrounds.
• Welcome new experiences.

👋 A favor: If you found this article helpful, please comment or share with your network! ♻️🙏

Most often, our greatest assets and potential pitfalls lie within our own minds. As Richard Feynman aptly put it, “you must not fool yourself, and you are the easiest person to fool.” Last week I pointed out the criticality of “reality check” to success on your entrepreneurial journey. But that is easier said than done as reality is quite elusive.

Cognitive biases, those “features” of human psychology that we have inherited over millennia to survive, more often than not create blindspots for us that hide reality in plain sight. As such, if unchecked these biases adversely impact our assessment of risks, opportunities, and ultimately, our startups’ trajectories, taking us off course ever so subtly each day until it is too late. Thus, awareness of these biases is essential to charting the optimal path forward for your startup.

Here are the 6 most pervasive cognitive biases to watch out for:

1. Confirmation Bias

What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact. — Warren Buffett

One of the first lessons in entrepreneurship is to listen. Listen to your customers, partners, employees, competitors, suppliers, investors, etc. Yet, more often than not instead of truly listening, we are looking for information that fits with our existing beliefs. That is, we typically only hear echoes of our own convictions and filter out other inbound information. This confirmation bias tunes us to information that supports our views while ignoring dissenting evidence. While it enhances our focus and ability to be agile and efficient short-term, ignoring critical information often results in long-term disaster. Eastman Kodak Company’s dismissal of digital photography’s potential is a classic example of how confirmation bias can dethrone a well-established market leader.

Pro: Efficiency, focus, speedy development.

Con: Ignoring crucial pivot points or feedback.

2. The Dunning-Kruger Effect

The greatest enemy of knowledge is not ignorance but the illusion of knowledge. — Stephen Hawking

There’s a thin line between confidence and hubris. Sadly, entrepreneurs, just like the rest of us, overestimate their abilities, a phenomenon psychologists refer to as the Dunning-Kruger effect (e.g., most drivers rate their driving skills as above average). When we overestimate our competence in areas where we’re actually novices, we miss an opportunity to learn or seek help. And as entrepreneurs, we are often in way over our heads on all sorts of matters, from industry domain expertise to leadership and management skills. While entrepreneurial conviction is essential to continuing on the path, so is humility and the ability to recognize which path is worth taking. “Strong convictions, weakly held” is the battle cry of many accomplished entrepreneurs. The startup graveyard is filled with those that mistook confidence for real expertise.

Pro: Fuels the courage to start and keep going, driving us to action.

Con: Leaves us unprepared to effectively address challenges.

3. Status Quo Bias

Only the paranoid survive. — Andy Grove

Andy Grove’s quote above captures the essence of an entrepreneur’s relentless pace. Since every new decision threatens our comfort zone, requires work, and consumes energy, our brains prefer to keep things the same or hold onto a previous decision. Our status quo bias, our preference for the familiar, can be a death knell for startups in rapidly evolving markets. Irrational attachment to any idea or creation is recipe for disappointment, just as it was for Blockbuster video who clung to its established DVD rental business until it was too late. And the opposite is also true. For instance, Netflix’s willingness to pivot from DVD rentals to streaming, disrupting its own business model in the process, is an example of the power of challenging the status quo and going beyond the familiar in our startups.

Pro: Offers a baseline of stability in tumultuous times.

Con: Keeps us anchored to sinking ships of outdated models.

4. Sunk Cost Fallacy

The most dangerous thing is not to evolve. — Jeff Bezos

This warning from Amazon’s founder highlights the peril of the sunk cost fallacy. Startups often continue down unsuccessful paths, driven by investments of time, money, and ego, just as Theranos continued investing in a flawed technology despite mounting evidence of its shortcomings. Few walk out of a movie theater after realizing that the movie is not worth their time. And that cognitive resistance to change course grows exponentially as the amount of investments grows besides the size of a movie ticket. Recognizing when to take action, change course, walk out, or pivot, as Slack did from a gaming platform to a business communication tool, requires courage and conviction. But most of all, it requires a realistic assessment of costs and benefits, which is only possible when we take an objective stance unbiased by past investments and efforts.

Pro: Demonstrates resilience and dedication.

Con: Anchors us to failing strategies and lost causes.

5. Availability Heuristic and Recency Bias

People tend to assess the relative importance of issues by the ease with which they are retrieved from memory — and this is largely determined by the extent of coverage in the media. — Daniel Kahneman

Overestimating the importance of information that comes to mind easily skews perception of reality based on recent or vivid memories. Whatever has made the biggest impression tends to have the most intuitive persuasive power. If unchecked, you may find yourself making important product or strategy decisions not based on reality but based on anecdotes and stories that have made an impression. In our hyper-connected world, the latest tweet, the freshest headline, seems to demand immediate action, painting a picture of reality that’s as fleeting as it is vivid. Amazon’s long-term strategy, contrasted against the frenetic pace of daily trading and quarterly reports, offers a lesson in looking beyond the horizon, reminding us that true vision lies in seeing past the immediate.

Pro: Keeps us agile, ready to respond to the latest developments.

Con: Obscures the long view with the fog of the immediate. Amazon’s long-term orientation contrasts sharply with the short-sighted frenzy of daily market movements.

6. Optimism Bias

The best way to shield yourself from nasty surprises is to anticipate them. — Rolf Dobelli

Hope fuels the entrepreneurial spirit, but unchecked optimism clouds our judgment. The optimism bias can lead us to underestimate risks and overestimate success, painting an overly rosy picture of our ventures. Balancing optimism with realism, as Elon Musk does with SpaceX and Tesla , involves preparing for failure even as we aim for the stars.

Pro: Drives us forward through setbacks and challenges.

Con: May lead us to underestimate the obstacles ahead. SpaceX’s journey from repeated failures to historic success showcases the power of balanced optimism.

___

👉 Navigating the entrepreneurial journey requires more than just chasing a big TAM; it demands a commitment to reality and a relentless examination of your core assumptions. Real opportunities are grounded in, well, reality: Real customer needs. Real market trends. And subject to real risks. Recognizing your biases and blindspots is the first step to taking advantage of real opportunities and positioning yourself with the best chance to address real risks. But awareness of a bias does not automatically render you immune to it. Next week, I will discuss actionable steps you can take to keep these cognitive biases in check.

Thank you for reading! Love to hear your thoughts and to continue this conversation in the comments. 🙏

In Silicon Valley, the “power law” reigns supreme and dictates a game of high stakes and monumental returns. Yet, within this framework lies an existential challenge for entrepreneurs: navigating a path that optimizes for their startup’s success while contending with the investor mindset that optimizes success at a portfolio level.

While much has been said about power law from the investor perspective (see, for example, its well-researched history by Sebastian Mallaby), it is time we take a closer look and rethink the power law from the entrepreneur’s point of view.

The Entrepreneur’s Dilemma:

Power law in venture investing represents the fact that in venture capital portfolios, a couple of successes more than cover for the losses by the rest. Historically, a very small single-digit percentage of deals account for the majority of venture returns. Pursuing the power law has worked out quite well for many VC firms and attracted ever increasing funding into the sector (peaking at over $600 billion in 2021), fueling global innovation at unprecedented levels. Because of power law dynamics, venture capitalists seek out only those startups that have massive return potential, which explains their fixation on Total Addressable Market (TAM)) and their relentless push on each portfolio company to go for scale and market dominance as soon as possible. “Go big or go home” is not an empty slogan, but an unquestioned edict in the cult of the power law!

As a natural consequence of the power law, those startups that don’t exhibit the highest levels of ambition or potential don’t get funding and/or support from the venture capital community. The clear winners in a portfolio tend to get the most attention from investors and the struggling ones, not so much.

Venture Capital is the only asset management class that focuses on return/potential maximization rather than risk management/minimization. -Michael Tan

While the power law has been the invisible hand guiding the venture capital community, the fundamental problem for entrepreneurs is that they do not have the luxury of a portfolio. Because investors have a portfolio, they have significantly less at risk in a startup than the entrepreneurs in that startup do (who, after all, have all their eggs and more in that one basket). Most startups fail, and the chances that your startup may be a unicorn is well, very, very, very low at best. Thus, while both investors and entrepreneurs want their companies to succeed, there is an inherent, structural misalignment in incentives, asymmetry in risk tolerance, and clash in definition of “success” for the two groups. What is considered success for entrepreneurs is more often than not considered a failure by investors.

For example, most entrepreneurs would be elated selling their startup for $50 million after a venture round that valued that startup at $30 million post money, but most venture capital investors would want to dissuade those entrepreneurs from taking that course of action and urge them to aspire for much bigger exits instead. What is a life-changing outcome for most entrepreneurs is at best perceived by most VCs as a missed opportunity brought about by lack of courage and/or ambition. Because they have the benefit of a portfolio, investors are far more willing to roll the dice and go for a bigger outcome in the future than entrepreneurs, who would much rather seize that metaphoric bird in the hand.

The power law, as a guiding principle, has led to a dysfunctional dynamic between investors and founders, to the detriment of both. Among the manifestations of this dysfunction is what I’ve come to identify as the “exit taboo.” This is essentially the reluctance against entrepreneurs openly discussing exit strategies, which not only undermines the very fabric of startup culture but also precipitates the untimely end of many promising ventures. (For those interested in a more nuanced dissection of this issue, I’ve delved into it in greater detail in an article for the Harvard Business Review.) Another manifestation is a lack of open and honest communication by entrepreneurs of problems plaguing their startup, worrying that investors may give up on supporting them if they suspect their startup may not scale as fast and grow as large as they had initially expected. Thus, they keep on not delivering the “bad news” until it is too late to do something about it.

And therein lies the good news: once you recognize this asymmetry in incentives and its consequences, there are actually several things you can do not to fall victim to it.

What You Can Do:

1. Develop a Robust Business Model: Build a business model that stands on the merits of sustainability and resilience. Develop a line of sight to cash flow breakeven as soon as possible. Focus on creating real value for your customers, a strategy that ensures growth and profitability, regardless of the scale. This foundation will not only attract a broader spectrum of investors but also provide a buffer against the boom-and-bust cycles that the pursuit of unicorns can engender. Fundability has more to do with group psychology (i.e., what leading investors consider to be “hot” sectors) than objective prospects of your startup. I have been involved in several startups that didn’t make it to their next round of funding and shut down just because of timing: the investment community was looking to invest in something else and was just not into them.
2. Be Capital Efficient: Even if you can readily raise tons of venture money at lofty valuations (here is looking at you AI startups), think twice. Most consider the size of a venture round a success metric, but unfortunately that is usually not the case unless you are truly a growth stage company ready to just pour fuel on the fire and take off. The problem with a large funding round for your startup is that it (a) unnecessarily inflates your valuation and thereby reduces the population of your potential acquirers and future investors, (b) increases the likelihood of ugly and demoralizing down-round financings (a fate shared by many of the 700+ unicorns currently in limbo), and © forces you to scale prematurely, growing in a direction that may not have been the optimal path had you taken more time to iterate and listen to your customers.
3. Communicate Transparently with Your Investors: In the startup world governed by the power law, founders often hesitate to share challenges with investors, fearing it might deter support. However, this misses a key point: knowledgeable investors, aware of the long odds for massive success, are typically open to alternative success pathways if they truly understand the real challenges facing your startup. Recognizing this can transform the founder-investor dynamic from a high-stakes gamble on becoming a unicorn to a strategic partnership to find the right outcome, be it an exit or something else. Only by fostering a culture of transparency, startups and investors can collaboratively navigate towards achievable and meaningful results.
4. Work on Your Exit Strategy: Counter the “exit taboo” by openly considering and planning for various exit strategies long before an exit is necessary. For every IPO there are at least 30 exits by acquisition, whether by a strategic partner, private equity firm, or others. Creating and executing against a clear exit plan is the best ways to build value and strategic options for your startup, as I discuss in detail in my book Exit Path.
5. Cultivate a Supportive Network: Build a network of mentors, peers, and advisors who understand the nuances of your industry and the complexities of growing a business under the power law shadow. This community can offer invaluable advice, alternative perspectives, and potential connections to investors who respect and support varied paths to success.

Navigating the power law in Silicon Valley requires a blend of strategic acumen, clear communication, and a steadfast commitment to your vision. By understanding the investor mindset and the dysfunctions resulting from power law, you can carve out paths to success that are both sustainable and aligned with your values. The journey is challenging, but with the right strategies, it’s possible to thrive within — and perhaps even reshape — the dynamics shaped by the power law.

I am often asked by entrepreneurs about the role and criticality of having a champion on Corporate Development (or “CorpDev”) team of a potential strategic partner. In response, I start by describing what these “Corporate Cupids” do (yes, as my nickname suggests, they are skilled matchmakers), and then I caution everyone not to fall in love with cupid. In the spirit of Valentine’s Day week and as a former Corporate Cupid myself, I feel that I owe you a more detailed explanation to help you rethink and fine tune your approach to strategic partners.

While you don’t have to start your conversations with a potential strategic partner at the CorpDev level, members of the CorpDev organization are an excellent initial point of contact for you if you don’t have a direct relationship with any of the product or business unit leaders in that organization. This is especially the case if your ultimate intentions involve exploring potential investment or acquisition interest.

If you manage to win a champion on the CorpDev team, you will then be granted access to the rest of the organization and get a warm introduction to the ultimate decision makers in that company. All the CorpDev team member needs to do at that point is to get you and internal approver in a conference room, dim the lights, and paint the right (strategic) picture. It is important to note that CorpDev team serves and supports the rest of the organization, as Finance, Accounting, and Legal do for instance, but has little approval power or any resources to actually make a deal happen. In other words, CorpDev teams influence the strategic trajectory of very large organizations, without authority. The best CorpDev teams, like the best matchmakers, understand the needs of the parties and when they find a suitable match, make the connection and provide the right conditions for love to blossom. Of course, once a potential deal gathers momentum and has the requisite organizational blessings, CorpDev teams roll up their sleeves and do the necessary work to move it from initial engagement to the happy-ever-after phase.

Here are 5 secrets to wining over the hearts and minds of these Corporate Cupids:

1. Lead with Value

“Strive not to be a success, but rather to be of value.” — Albert Einstein

Much like deciphering a complex algorithm, articulating your startup’s value requires a nuanced understanding of both your startup’s mission and your potential partner’s unmet needs. Imagine your solution not as a mere product but as the missing piece of a puzzle they’ve been trying to solve. Key is to find your strategic value to them and position yourself accordingly. Sometimes, that may take years of preparation. For example, when we looked at the universe of potential acquirers for Webs.com back in 2019, we realized that most of them were focused on small business solutions. That propelled us to transform our product suite from a generic website creation platform to one focused on helping small businesses establish an online presence. We worked on that for 18 months before we were ready to approach our wishlist of potential strategic partners.

2. Stay Curious

“True knowledge is when one knows the limitations of one’s knowledge.” — Confucius

In the pursuit of forging meaningful partnerships, a mindset of curiosity underpinned by intellectual humility is indispensable. Your encounters with the Corporate Cupid should be as much about asking the right questions as they are about having the answers. Curiosity propels us to dive deeper into understanding the intricate workings of a potential strategic partner’s world, uncovering needs and aspirations that even they might not have fully articulated. Intellectual humility, moreover, allows us to acknowledge the limits of our understanding, creating space for learning and growth. Together, these qualities foster a dialogue rooted in genuine discovery, where the goal is not to impress with what we already know but to explore what we can achieve together. Just as a scientist approaches their research with a hypothesis yet remains open to unexpected findings, so too must entrepreneurs approach partnerships with a mindset that values the journey of learning over the destination of agreement. In this space of shared curiosity and humility, partnerships are not just formed; they are discovered, revealing possibilities that were invisible before. This mutual quest for insight becomes the foundation upon which truly transformative partnerships are built.

3. Reveal your Authentic Self

“Always be a first-rate version of yourself and not a second-rate version of someone else.” — Judy Garland

Authenticity is the cornerstone upon which meaningful partnerships are built. In a world awash with polished pitches and rehearsed narratives, the value of genuine interaction stands out as a beacon of trust and relatability. Being authentic means presenting your startup not as an infallible entity but as a living, evolving venture that faces challenges and seeks growth through strategic alliances. It involves sharing not just your successes but your learning curves, allowing potential partners to see the real journey behind your venture. This vulnerability, far from being a weakness, is a powerful connector, fostering a level of trust and understanding that transcends conventional partnership dynamics. An authentic approach invites Corporate Cupids to engage with you not just on a business level but on a human level, paving the way for partnerships that are rooted in mutual respect and shared values. Remember, in the dance of corporate collaboration, those who dare to be genuine are the ones who truly resonate, creating partnerships that are not just strategic but profoundly impactful.

4. Don’t Pitch, Teach, or Preach, Tell a Story Instead

“Marketing is no longer about the stuff that you make, but about the stories you tell.” — Seth Godin

In a world bombarded by pitches, grand standings, and proposals, crafting a narrative that sticks is an art form. The most compelling pitches are those that tell a memorable story, one where the potential partner sees themselves not just as investors or business partners but as characters in a shared quest in pursuit of a common mission. This narrative doesn’t shy away from the data or the hard facts but frames them within a story that speaks to the human aspirations, challenges, and the very desire to be part of something greater. As you craft your story, consider not just what your startup does, but the human condition it addresses, and how that story intersects with the narratives that Corporate Cupids are seeking to write to further advocate for you in their organizations.

5. Pace Yourself

“To lose patience is to lose the battle.” — Mahatma Gandhi

The path to partnership is a slow dance, one that often requires more patience than we, as entrepreneurs burning with urgency, might be inclined to give. Yet, it’s this very patience — that willingness to engage in the slow, deliberate steps of getting to know each other, of building trust and aligning visions — that often leads to the most enduring and fruitful partnerships. It’s about recognizing that the best relationships, like the strongest trees, grow slowly, rooting deeply into the ground before they reach towards the sky. In this dance, every step, every turn, is an opportunity to demonstrate your commitment, your reliability, and the depth of your vision.

A Symphony of Strategy and Synergy

As you reflect on these secrets to winning over Corporate Cupids, remember that the essence of these interactions lies not in the mechanics of negotiation but in the art of building relationships. In this journey, the greatest secret perhaps is recognizing that these strategic alliances, much like the most profound human relationships, are built on mutual respect, shared vision, and a commitment to grow together.

In the realm of entrepreneurship and leadership, there’s a principle as essential as it is overlooked: knowing what not to do is as crucial as knowing what to do. It’s time to shine a light on a fundamental yet often misunderstood aspect of our professional lives: the art of delegation.

Delegation is a nuanced art. It’s not merely about offloading tasks; it’s about strategically choosing which tasks to offload and to whom. Many of us, particularly entrepreneurs and leaders, clutch our responsibilities tightly, laboring under the misconception that personal oversight is the key to efficiency. This belief, however, is shortsighted. True efficiency isn’t about hoarding tasks but distributing them wisely. The success of our ventures — and indeed, our personal well-being — hinges not just on what we decide to do but also on what we decide not to do.

Why is delegation so challenging?

The reluctance to delegate often stems from a fear of imperfection, a belief that no one else can meet our exacting standards. Leaders fear losing control, mistrust their team’s capabilities, and dread being perceived as “lazy.” Moreover, few of us are born delegators; the skill is not innate. When we do attempt to delegate, we often end up causing more confusion and frustration due to poorly defined tasks and insufficient feedback.

What are the upsides to delegation?

The benefits of effective delegation extend far beyond personal time management. They’re transformative for our teams and organizations. Like cogs in a well-oiled machine, a team balanced with responsibilities runs smoother than one burdened by centralized control. A Gallup research highlighted that CEOs who excel in delegation report a 33% increase in revenue. Further studies underscore the link between effective delegation and higher team engagement and innovation. Delegation fosters a culture of autonomy and accomplishment, leading to more motivated and fulfilled employees.

What shall we delegate?

Consider the “Competence vs. Capacity” framework as a lens through which to view delegation. Assess tasks based on your unique skills and availability, and delegate those where you have low competence or capacity. This framework isn’t just about task offloading; it’s a strategic approach to ensuring tasks are placed where they can be executed most effectively, thereby enhancing overall productivity and empowering your team.

“If you really want to grow as an entrepreneur, you’ve got to learn to delegate,” Richard Branson advises. This wisdom is echoed across the landscape of successful organizations:

• Google X thrives by delegating autonomy to its teams, allowing them to chase moonshots with the freedom to fail and learn.
• Netflix’s content empire, built on decentralized decision-making, empowers creators with the autonomy to innovate, resulting in hits like “Stranger Things.”
• Zappos’s holacracy model delegates decision-making to all levels, fostering a culture of accountability and efficiency.
• Patagonia delegates environmental advocacy across its operations, embedding sustainability into its corporate DNA.
• Khan Academy leverages a community of educators and volunteers, demonstrating the power of delegation in scaling impact.

These examples illustrate that effective delegation can be the key to unlocking success across diverse industries. It’s about understanding your team’s strengths, setting clear goals, fostering a culture of trust and communication, and providing the necessary support.

As we navigate the complexities of our roles, let us remember: delegation is not a sign of weakness but a strategic imperative for growth which unlocks new levels of efficiency, propelling our teams and organizations to greater heights.

So, as you consider your next steps, ask yourself: What will you choose not to do?

Strategic debt accumulates for every business. And it accumulates fastest for those businesses that scale fastest.

Most entrepreneurs and engineers are quite familiar with the notion of “technical debt” that accumulates in the rush to launch and iterate. It is simply the price we pay for choosing speed over efficiency, scalability over perfection. Technical debt is a calculated risk, a necessary part of growth. But as we scale, we will eventually spend the hours to reduce/pay back this debt, knowing well that if left unchecked, it can halt progress or even lead to disaster (think of Twitter’s infamous “Fail Whale” in its early days).

However, there’s another, often overlooked debt: strategic debt. This debt accumulates not in our code, but in our business trajectory, ever so slightly taking us off course. When we focus on near-term priorities, addressing what is urgent rather than strategic, we risk prioritizing immediate gains over the long-term impact of our decisions. This includes choices about features, products, or partnerships.

I learned this the hard way with my first startup, Jaxtr, a mobile calling and texting solution in the mid-2000s, as I detail in the beginning of my book Exit Path. In our pursuit of customer viral growth, we overlooked more strategic decisions. Meanwhile, three competitors who launched the same year as us made more thoughtful choices, focusing on business development and building development platforms over our viral growth focus. The result? They achieved spectacular exits, while we, caught in the winds of the Great Recession, simply lost the battle.

This experience taught me a crucial lesson: while addressing the immediate is important, aligning it with a long-term vision is critical. Strategic debt, like technical debt, needs careful management. To manage it properly, it needs to be identified, tracked, and addressed. That means, you will need to constantly make sure that you are spending time on what will eventually move the needle for your business in the long term, despite the daily fires that consume most of your time and resources.

“Don’t let the urgent things crowd out the important.” — Charles E. Hummel

Here are a few examples from the business to illustrate the concept of strategic debt:

1. WeWork’s Rapid Growth: WeWork pursued aggressive growth and expansion, focusing on acquiring new properties and increasing its valuation. This strategy led to significant financial strain and a failed IPO attempt in 2019, making it a cautionary tale for entrepreneurs and investors alike.
2. Facebook’s (Meta’s) Privacy and Data Management: Facebook (now Meta) has faced significant challenges related to user privacy and data management. The company’s initial focus on user growth and engagement, often at the expense of privacy considerations, resulted in several high-profile data scandals, lawsuits, erosion of public trust, and ever stricter regulatory scrutiny.
3. Boeing’s 737 MAX Development: Boeing’s development of the 737 MAX aircraft is an example of strategic debt in product development. To compete with Airbus and quickly deliver a new product to market, Boeing made design choices that compromised safety. The subsequent tragedies and grounding of the 737 MAX fleet highlighted the long-term risks of such strategic decisions and with the recent Alaska Airlines incident, it seems the story is not over yet.
4. Kodak’s Delay in Digital Photography Transition: Kodak’s reluctance to fully embrace digital photography, despite having the early technology, is a historical but still relevant example of strategic debt as well as a classical case study on how disruptive innovation takes advantage of incumbents’ accumulated strategic debt. The company prioritized its profitable film business over the emerging digital trend, leading to its eventual downfall as digital photography became mainstream.

In short, understanding and managing strategic debt can be the difference between a fleeting presence and lasting success.

👉 Your Thoughts? Have you encountered strategic debt in your ventures? How have you navigated or mitigated its impacts? Share your stories and strategies in comments.