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How hard should founders work?

This thread on Quora got me thinking about how investors should think about the work rate of the founders they invest in.

The first answer is that it shouldn’t matter.

If a founder finds a way to build a valuable business in two hours a week we’d be delighted for her. Everybody wins.

In a world of perfect information it would be that simple.

However, as we know, the reality of startups is that investors have to make decisions based on very little information and without much time to build trust. As a result we have to rely on proxies and inferences. And, even though it’s an input rather than an output metric one of those proxies is work rate.

Big caveat: founders should never measure themselves by the number of hours they work. They should focus on what they are getting done.

My belief, and I realise now that I’ve never seen a study, is that up to a point there’s a correlation between hours worked and success.

At the risk of making some people angry, I’m going to go out on a limb and put some numbers around this. Different people work with different efficiencies of course and all I can offer here are broad generalisations. Do remember though that I’m talking from experience with entrepreneurs who have achieved at least some level of success, most of whom are highly productive.

There were all sorts of numbers bandied around on Quora, and people often talk up the amount of time they spend at work, but from what I’ve seen forty or even fifty hour work weeks aren’t usually enough for entrepreneurs looking to build venture scale businesses. On the other hand weeks of more than eighty hours are too much for most people to sustain for any length of time. Building a startup is a marathon, not a sprint, and it’s crucial that family, friends and personal health aren’t forgotten.

People like Bill Gates and Elon Musk find ways to work for more than this for extended periods of time, but that’s truly exceptional. As an investor, I love exceptional, but working truly exceptional hours isn’t there only route to success.

So, my advice to would be entrepreneurs looking to build companies worth £100m+ is to be prepared to work 60-80 hours per week on average, but with significant fluctuations.

That’s not working for the sake of it, of course. But at any startup enjoying even moderate success the list of things that could be done is never ending.

I reckon my working week averages around sixty hours.

All that said, I’ve never heard of an investor asking how many hours a founder works. Rather we ask how the business is doing. When it comes to work rate we look for clues like response times to emails, late working sessions in the office, and things happening over the weekend. More generally we take comfort from little signs that founders are truly committed and are doing everything possible to win, and get worried if personal issues take priority when things aren’t going well.

I realise that working a 60-80 hour week isn’t for everybody and isn’t practical for some people who might like to. I’m not saying those people shouldn’t start companies, but they should think through this issue carefully.

Zulily – one of the fastest growing retailers of all time

I knew that Zulily, which Crunchbase describes as ‘A daily deal site for mums, babies and kids’. is an amazing ecommerce success story which IPO’d last year with a valuation in the billions. A friend of mine headed up their UK operations for a while, so I also knew that they were second to none in their use of data to drive a personalised flash sales shopping service to their customers and that their scale has allowed them to deliver an amazing level of personalisation.

However, I hadn’t until now, appreciated just how amazing their growth was or known that they are one of the fastest growing retailers of all time (according to Geekwire).

As you can see from the chart below they went from a standing start in Q4 2010 to a forecast $1.1bn in net sales last quarter. Maintaining growth of that scale for that long is truly remarkable, and it’s great that Zulily have shown it can be done in a physical goods business.


Standard termsheets

We have a standard termsheet that we’ve used on our last few deals and plan to publish in the near future once we’ve ironed out some final wrinkles. The thing with standard termsheets is that they go straight to the position where you would normally expect to end up after negotiation. Normal termsheets, by contrast, take a position that is favourable to the investor with the expectation that they will be negotiated down.

In our case we set out to be founder friendly and wrote a termsheet that has the minimal set of investor protections that we can get away with as an institutional investor – we need some protections because we have a duty of care to the people who invest in our fund. We looked at the other standard termsheets that are out there, Series Seed, Series Summit, etc and were either consistent with them or more founder friendly they are. We couldn’t use them as is because they don’t have enough detail on key items, like investor protections and founder vesting.

Since writing that termsheet we have used it on around four deals and shared it with a few more companies we have had discussions with. We have taken their feedback and tweaked the termsheet as appropriate with the result that on all terms bar valuation, option pool and details of founder vesting our termsheet is now, in effect, very close to fully negotiated before we send it to companies.

The purpose of a standard termsheet and the full set of standard legal docs that will follow is to make the investment process much quicker and cheaper. We hope to get the time from termsheet to completion down to a matter of days and save thousands in legal bills. It is frustrating to see time and money wasted on negotiating the same points on deal after deal with the same results.

So there’s a big prize to be had, but it requires that everyone takes a different approach to negotiation – i.e. to focus on the small number of key terms that matter which I mentioned above and not get bogged down in the detail of other terms.

I’ve found myself explaining that to entrepreneurs a lot recently (including today) and so I thought I would write it down here so that next time I can simply send a link to this post.

“This is an incredible time for technology firms in our city”

CityAM reported yesterday that fundraising in London’s tech sector is currently up over 30 per cent on last year’s $719.3m total, and there’s still three months still left in 2014. The figures are from London and Partners, the Mayor’s promotions agency.

Mayor Boris Johnson said:

These figures show, without any question, that this is an incredible period for technology firms in our city

And I have to agree.

To repeat a brief history of the UK venture industry that I’ve given before – the startup ecosystem only got started in the UK in the mid to late 1990s and was pummelled by the April 2000 internet crash when it was still in its infancy. We’ve been growing and recovering since then, but the markets have been tough and we’ve been subscale. The number of good entrepreneurs and quality startups has steadily increased, but this is a two sided market, and the other side, the capital, has been slower to grow. The lack of cash has restricted the growth in the number of startups and often resulted in those that do adopting more conservative growth plans than they would in a market where capital flowed more freely, like it does in California.

Things are definitely getting much better. I don’t think we will know we’ve reached critical mass until we are definitively past it, but it’s starting to feel to me like we might be close. Government support in the form of EIS and SEIS, and support to the VC industry has been critically important in recent years and this year we’ve had a slew of big exits – Zoopla, AO and Just-Eat all IPOd this year for over £1bn. That coupled with a hot economy is, I think, what’s making the difference.

We do, of course, have to be careful of irrational exuberance. If we end up in another bubble followed by a crash we may well find ourselves set back a few years. I don’t think we are at that point now though.



The dangers of raising too much money

Last week Marc Andreessen fired off one of his now famous Tweetstorms about the problems that having too high a cash burn can bring. These are the money tweets (if that’s a thing..):

Screen Shot 2014-10-02 at 20.42.12

Marc was talking about large companies with huge burn rates, but they also apply at the earlier stages. I regularly get asked about the dangers of raising too much money, and these tweets nail it. Investors will only invest a lot of money if they’ve been sold a plan that needs it. Hence once the money is raised the burn will go up, and if that’s premature then the problems above ensue.

Mark Suster recently wrote a good post on this subject. His advice to startups is to raise at the upper end of normal. That’s good advice.


Nugget from PG’s latest essay: There is no ‘trick’ to startups

Paul Graham published his latest essay this week. It takes the form of advice to college students about starting companies and as usual there’s lots of good stuff.

The section that stood out for me was this:

So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may continue to work if you go to work for a big company. Depending on how broken the company is, you can succeed by sucking up to the right people, giving the impression of productivity, and so on. But that doesn’t work with startups. There is no boss to trick, only users, and all users care about is whether your product does what they want. Startups are as impersonal as physics. You have to make something people want, and you prosper only to the extent you do.

Most everywhere else in life unscrupulous people can progress by gaming the system. People figure out how to pass exams with the least work, they lie on their CVs, they even cheat on their partners. PG’s point is that there’s is no analogy for this in startup-land. The one exception is that investors can be tricked – but that’s like a sugar rush – it feels good in the short term, but doesn’t help in the long run.

The slightly depressing news then, is that the only way to succeed in a startup is to work hard and do things thoroughly. PG also makes the point that it doesn’t get any easier as companies grow. That’s what he’s heard from all the most successful YC founders and what we’ve seen too.

So if you are founding a company, be prepared for the long haul. This topic is on my mind this week because we were in discussions with an entrepreneur who told us at the eleventh hour that after six months he wanted to drop back to a part time role in his startup. I’m glad he thought it through and told us, and that we didn’t do the deal and find out later, but it illustrates the point – founders should be prepared for up to a decade of hard work.

Announcing our investment in Dataloop

I’m very pleased to let you all know that we have invested in The announcement went live yesterday.

Dataloop provides infrastructure monitoring for cloud services and they fall into our ‘late seed’ category of investment. That means they are up and running and on a 12-18 month path to their Series A. (Our other category of investment is ‘idea stage’, often with solo-founders.)

The starting point with this one was the team. We got to know David Gildeh, the CEO and one of three co-founders, around this time last year. At that time he was talking about infrastructure monitoring, doing customer development work but had yet to start the company. The first thing we liked was that the team was scratching their own itch. They were coming out of Alfresco where they’d built a custom solution to monitor their infrastructure as they’d moved from an on premise software company to a cloud play. On top of that we liked the fact that David was being very thorough with his customer development work and the fact that Dataloop was to be his second startup (his first was acquired by Alfresco).

From a market perspective we liked the fact that companies everywhere are building their own custom cloud monitoring solutions using open source software – just like David and his team did at Alfresco, and that as cloud penetration increases demand for cloud monitoring solutions is only going to grow.

We kept in touch for the next several months, during which time David incorporated Dataloop with his two co-founders Stephen Acreman and Colin Hemmings, closed their first two customers, created the successful DevOps Exchage meetup, and took Dataloop through the Microsoft Accelerator programme in London. As they came out of that programme they started talking with investors about raising their first round.

We were encouraged by their progress so we dived in deep to develop our understanding of the market. It’s a complicated and deeply technical story, but once we’d wrapped our heads around it we began to get quite excited. Simply put, Dataloop is part of the growing ‘DevOps’ meme that’s arising because infrastructure management is growing in importance and complexity. The underlying drivers are the continuing shift into the cloud, the growing complexity of online services, and the trend towards continuous deployment – all trends with legs. The brittle custom built solutions currently in place are increasingly inadequate for the task and the competing products out there either demand that developers learn new languages or are not the main focus of their companies. We were significantly aided in our understanding by the developers in our team who have been living some of the problems that Dataloop is solving.

A strong team, an attractive market and a good dose of momentum are the key ingredients for a seed stage software investment and Dataloop has those in spades. I’m looking forward to being part of their journey.


The importance of curiosity

We have been interviewing lots of solo founders recently as we look to deepen our understanding of one of our key customer segments. ‘What do they want?’ and ‘Where do they hang out?’ are our two main questions.

I will report on what comes out of this customer development work in due course, but today I want to share an observation about one of the things that separates solo-founders we’ve backed from those that we haven’t, and that’s curiosity.

A strong desire to learn is a characteristic shared by many successful entrepreneurs, and within our sample that manifested itself in frequent attendance at startup events, fervent reading, and networking with experts to increase domain knowledge and validate/tweak business plans. Other entrepreneurs simply got their heads down and started building.

Interestingly, everyone had read The Lean Startup and professed to follow it’s guidance, although many did things that we would not regard as lean. It’s common to read books like that and then find them difficult to adhere to in practice.

Finally, a caveat – there are, of course, great entrepreneurs who have built large companies without attending startup events, reading books or networking with experts. My point is that we’ve seen a correlation between potential for success (as evaluated by us) and these activities.


Do Purpose – a shot of inspiration for CEOs

Do Purpose was the first book published by our portfolio company Unbound under it’s ‘channels’ initiative. Unbound is a crowdfunding platform for authors and has now published several notable books working directly with authors, including best seller Letters of Note and The Wake which was shortlisted for the Man-Booker prize. The channels initiative is a way for traditional publishers to work with Unbound to crowdfund the books that they then publish. That’s exciting because it opens up crowdfunding as an option for many more authors than Unbound can work with on it’s own.

I finally got round to reading Do Purpose last weekend. It was like a shot of caffeine in the arm. Short, to the point, and highly inspirational. The book is structured as a series of vignettes with titles like “Speed matters”, “Patience matters”, “Your people are your brand”, “Teams gather around change” and “Sleep is the multiplier of energy” that made me think and reflect on my life, Forward Partners, and some of our portfolio companies. There wasn’t much that I hadn’t heard before, but reading this book helped me reconnect with what’s important and gave me new resolve and energy.

Lots of entrepreneurs I talk with don’t business books because they take too much time. Not this one. I got through it in under an hour.

The four elements of life you need to balance

Running a startup (and an investment studio…) is a marathon not a sprint. It will be hard work, and unlike a true marathon there will inevitably be periods when you have to run flat out, but you need to look after yourself if you want to get to the end of the journey.

There’s a lot of talk about what that means, but in Leading the life you want Stuart Friedman usefully sets out four areas of your life that need balancing (review and summary here):

  • work
  • home or family
  • community or society
  • yourself

The trade-off between work and family is the most visible – you work late at the office and it matters to those waiting for you at home – but the other two are equally important. Looking after yourself through exercise, meditation or whatever floats your boat is key to performing well at home and at work.

The trick that the most successful people pull off, according to Friedman, is to stop thinking about work-life balance as a zero sum game and find activities that improve all the elements of their lives. Compromises are still made, but with a full understanding of what’s most important. Three tips for doing that are to be real (i.e. authentic), bring the different parts of your life together, and look for creative solutions to work-life balance problems.