Roger Ehrenberg of IA Ventures put up an interesting post on Friday about the importance of staying focused on your business and not getting distracted by the overall macro-economic picture or whether we are in a bubble or not.
I agree with this up to a point.
Roger titled the post ‘Know thyself’ and he starts with a seven point process for building a company which neatly captures what has become regarded as best practice over the last five years or so:
- Have a plan
- Speak to lots of smart people about the plan
- Iterate the plan
- Execute the plan
- Constantly critique the plan
- Adjust the plan as necessary
- Rinse, repeat
Which he summarises as “In short, know thyself and stay true to the mission. … And if your mission, over time, proves to truly suck, then it’s time to ditch the mission and reassess”.
I fully agree with that, although I still run into a surprising number of companies that don’t see the net benefit of having open conversations about their plans. It has been said a thousand times before, but these days ideas are cheap and execution is everything. For most businesses the gains to be had from sharing ideas to speed the iteration process and improve execution far outweigh the risks of plagiarism. And if you think your company is one of the exceptions take the time to think it through again to be sure you aren’t arriving at the conclusion for the wrong reasons (fear of rejection, natural reticence to share etc.).
Where I depart a little from Roger is with his assertion that entrepreneurs and VCs alike pay ‘way too much attention” to the discussion in the market about whether there is a venture bubble and the prospects for micro-VCs, large venture funds doing seed deals and so on. I agree that the first and last thing entrepreneurs should think about every day is running their company, but it is important to keep an eye on the wider market as the direction of the economy and the fundraising market need to be factored into strategy.
Roger’s post reads like a reaction to entrepreneurs and VCs spending too much time reading blogs and gossiping about the state of the venture industry, and he isn’t advocating ignoring the world outside of the office, saying “Worried about the macro environment? If you’re a company then raise 2-years of cash, not 9-12 months.”, and that is a fair point. I do, however, think that it is important for anyone deciding on future exit potential or likely ability to raise money down the line to have a good handle on the markets that will provide the finance. The challenge for venture backed startups is to optimise speed of growth against the constraint of dilution that comes from the cash required to finance that growth. That optimisation is hard to pull off without a good understanding of the venture markets.
Moreover, I don’t think that is possible to quickly get a handle on the venture markets. The venture world has almost as many opinions as it has practitioners and it remains a murky and mysterious world (despite the efforts of many to introduce some transparency, including roger and myself). I regularly encounter people who make bad budgeting decisions because they are over optimistic about the chances of raising more money, and occasionally meet people who should raise money but aren’t because they over estimate how hard it would be. Characters like these would make better decisions and have more success if they spent more time reading Techcrunch and venture blogs rather than less.