Saturday, November 5, 2011

"VC is a time bomb"

David Heinemeier Hansson, Partner, 37 Signals (Bio)

A super episode from Stanford’s Entrepreneurship Corner series. Highlights of the talk:

It's a myth that entrepreneurs need to be workaholics- In knowledge businesses, where ideas matter more, it's key to have a well rested mind to be productive in the 5-10% of your time that matters the most. Overwork introduces mistakes and, in any case, you cannot outwork a Microsoft or a Google. (Episode Minute: 22.00)

"VC is a time bomb" (Minute: 16:30)

- Unless you are building a semiconductor plant (or some other similar capital intensive businesses), accepting VC money upfront is harmful.

- It generally takes longer to build good businesses than VCs' exit time frames. Rocketship startups - which go from scratch-to-IPOs in 4-5 years - are most often the exceptions.

- While an average entrepreneur would be very happy with $1-M a year payout (especially if it goes straight into his bank), the VC business is hits driven. "For a VC, small is inconsequential". By targeting a small but very profitable business, the entrepreneur increases his odds in terms of depending on his skills (versus needing to timing the market right).

- As much as possible, invest your own money - which will ensure that you have a sense of urgency to get profitable, you will hire more carefully, etc. and focus on "profit share" in the market versus "revenue share".

- Some entrepreneurs tend to get "addicted" to VC fund raising and hence don't want to piss of "their dealer".

PR "buzz" is not for companies that are doing great
- in terms of profits, trying to increase their margins, etc. (Minute 56:00)

"Startups Don't Need to Fear Big Cos" (Minute: 40:00)

- The kind of products you develop as a large company that will throw a 30 member team at a project for 2 years with unlimited resources, is very different from a 3 member team with limited resources and need to break-even ASAP

- There's no correlation between structure and scalability. There is no need to add more people every time your revenues are up by $500-K or $5-M. In fact, the venture is scalable if you DON'T need to add people, every time your sales goes up. (Minute: 35:00)

"Do not disconnect decision makers from doers" (Minute: 51:00)

- Avoid "Manager Managers". Everyone must "do stuff". Else they will fill out eight hours each day by creating bullshit policies.

"All Planning (at a startup) is just harmful guessing" (Minute: 10:40)

"All decisions (in a startup) are temporary" - Hence taking any decision is better than not taking any (Minute:10:40)

Why its good to start up during a recession
- During a recession, customers need to desperately lower costs and will give startup companies (that offer a drastically lower cost structure) a chance (vs large, "safer" companies). (Minute: 53:00)

For Wannabe Entrepreneurs among MBA Students
- Conciseness of Communication (Unlike Professors, customers don't appreciate 20 pages)

- Work for someone else before you start your own company. You can be a good boss, if you have not lived in the shoes of an employee.

Listen to the audio from here (mp3) - 59:39 Minutes, 27.3 MB

(Use Right Click > Save As to download to your desktop)

The Video

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