Should You Be A Entrepreneur in Residence? Pt. 2
Let’s get into the business side of things
I spent some time in a startup incubator, and since then a lot people have asked me if they should join one as well. It is an important question to get right, so I took some time to write down my thoughts.
In the previous section I wrote that you as a person really need to take the time to consider what it is you want, why you want it and what you might do for it. Here we will talk a little more about the business itself — What you should do and how you should do it.
Below are points 6–12 of my 12 point list:
6. What role will you play?
Your incubator might be a haven for entrepreneurs, but you need to remember that there are all sorts of founders. Some people should be coming up with ideas, and others should be helping them execute those ideas.
The VC fund should give you a hint when you first start. They are trying to find people to fill different roles, and they will tell you what your role will be. Are you an industry expert or tech wizard? Congratulations, you have the in-depth knowledge needed to come up with a real idea.
Are you a business person? Yeah, don’t come up with an idea unless it is something cute and meta in the business world. Maybe suggest a network or a new corporate tool, if you want, but don’t bet your kid’s education on it.
There are very few start-ups with true “moats” that can’t be copied right from the start. Your product can typically be copied by money and a hundred people. However, knowledge is harder to come by, especially the deeper it goes. Seeing the edge of the horizon, and knowing what is not known, is valuable.
The most valuable moat a start-up can have, in my opinion, is arcane knowledge that is more geographic than scientific. Where is that gap, where is the world uncharted? When you see old Roman maps, the Mediterranean is at the center, and North American is nowhere to be found. Which of those cartographers could even think of a continent to the west? Yet there it was, and I bet there was someone who assumed that it wasn’t just ocean until wherever the world ended.
So it’s time to be honest again! Are you that person who knows the edges of a map? Yes? Can you think of a product that does something the cartographers haven’t seen yet? You need to come up with the product.
If that isn’t you, you can still be the founder. You just won’t be the prophet. You get to build the business around the idea, learn a new industry and be the support network for the idea. You are not the mother, you are the midwife.
If that isn’t palatable to you, then take two years and go become an expert in something. Come back and be the mother of dragons then.
7. Work with what you know
Don’t come in with the hope to pivot to a new industry or a new role.
I have been shocked by how many people, including myself, have come into an incubator with a secret dream to escape their current role or industry.
It is not bad to change your role or your industry, but 3 months in an incubator is not enough time to do it well enough to make a company. Go pivot and then come back with your skills.
You will not learn a new industry or a new role during the incubator. There is not enough time and you will not have the capacity. Don’t try it, you will get shot down.
Sure it’s not an absolute rule, but you only have enough time to play to your strengths, not develop any new ones. You must remember that, while the program might last three months, you will have about 3–4 weeks of uninterrupted company-building time. The rest of the time is taken up in all sorts of meetings and seminars that will distract you, give you information that isn’t immediately useful, and in general shorten your entrepreneurial time to about a half or a third of the entire time you have committed to the program.
8. Location, Location, Location
Location matters. Research shows that having the right community can make your company better.
You want to do biotech? Why aren’t you in Boston?
Have the coolest new way of having people work for you without having to employ them? What aren’t you in California?
Want lots of free money from the government and to be somewhere where this is too much private equity and not enough placement opportunities? Then why aren’t you in Oslo?
In addition, the valuation of your company will be higher in larger markets than it will be in smaller markets. That might not matter much right now, but remember that valuation will have a lot to say in future rounds when more capital means more dilution. And remember, you will be the one being diluted. Most products will require about the same amount of capital regardless of where they are being built, so really your capital requirements won’t be any less by being in a smaller market.
But then again, smaller markets often try to give you a lot of incentives to stay there, and that could mean the difference between survival and failure in the beginning.
I don’t have the best answer to this, I only submit it for your consideration.
9. The incubator is a facilitator, not your partner
Towards the end of the first phase of the program, when you are about to hit your investment committee, you will be stressed. You will be uncertain. You will have gotten validation that doesn’t feel very validating, and pressure to change something from people who a week ago thought you were on to the next big thing.
Do not expect help. You are on your own. The investors will not save you, they will not lift you up, you will dangle until you either choose not to pitch or you manage to smile the pain away and resume your assumption that everything was going fine.
Part of this is the creative process. They think that you are very capable, and a little stress might help you be even more creative than if you were just resting in their warm, comfortable arms. This can be true.
Also remember this: The incubator isn’t just about ideas, it is about you. If you thought the interview process ended when you got the contract, you are wrong. From what I could tell, they are not just investing in a company, they are hiring you to try out an idea. Remember, charisma and presentation count. And unfortunately, uncertainty and honesty are not very sexy. They might get you respect, but they usually won’t get you money.
Don’t expect any advisor or partner to give you an idea. Sure they are there to work with you, but you are also implicitly in a job interview. They are hiring on your potential as well as anything else. Remember, Charisma counts. That doesn’t mean that they won’t bail you out if they like you, but don’t assume that you are the person they want to save.
10. Come with an idea
If you want to be an idea person, then you need to show up with an idea.
Three months is not enough time to come up with an idea and develop it to the point where it can be pitched. Let me tell you why: In those three months, at least two months will be taken up by meetings, presentations, get-to-know-each-other sessions, coffees, drinks, football, and all sorts of things useful to finding a partner (we’ll talk about that next).
You will have at most four weeks of unmolested peace to agree on a partnership, do your thinking and research, and get a presentation together.
Four weeks is nothing, and it’s very unlikely that you will even come up with a successful idea.
In the best case, you find someone you want to work with, an industry you think is worthwhile, and an idea you will inevitably have to pivot from in the future. It’s not a bad place to be, but please refer to your risk analysis from earlier. Does this seem in any way to decrease the uncertainty or increase the likelihood of entrepreneurship being the best of all possible choices?
In addition to the all too brief window of productivity, there is also a super important though indirect benefit of coming to an incubator with your idea:
The best validation your idea will have throughout your entire time at the incubator will come if they take that idea into the program. They will not take an idea that they don’t like. Half of the work in preparing for your investment committee is done if they show that they already like the idea before you even get your name tag.
You will never get as much validation for your idea throughout the entire program unless you can get a paying customer on board. Everyone will be cagey and reluctant to say anything concrete before the actual investment committee.
11. Finding a Partner
No matter what is happening, the incubator is the best opportunity you will have in ages to find someone you want to start a company with. You will meet so many interesting people that you would otherwise not have been connected with. People with passion for things you have never thought of, skills that you haven’t developed, and expertise that could really make your idea a success.
You might not realize this, but people pay an awful lot of money to be in the same room as other interesting people. They call that university.
People pay even more money to be in the same room as people with lots of money or phone numbers you would kill for. They call that networking.
Incubators give you some money to show up, meet cool people, and network with people who typically would cross the street in order to avoid talking to you about business. Incubators give you access that you would not otherwise have to both ideas, people, networks and opportunities that you would otherwise have to hustle to get.
That is worth something, and that perhaps is the most valuable tool available.
Saying that, here are some general rules that I think would be helpful for anyone trying to get the most out of their time.
Drop the romance after the first week. Meeting all of your peers can be a lot of fun, and you should take time to enjoy their company. However, this is not a holiday or a social club. After the first week, get down to business. Be honest and open. with yourself and others. Let them know what you want and what you can offer. Partnerships based on affection, similar worldviews, or just because you really get along can get you somewhere, but probably not across the business line.
If you are looking for a lover and not a business partner, then you should go somewhere else.
Complimentary skills are important, but so is diversity. Do not choose a partner who is too similar to you in personality and outlook on the world. Diversity is key to understanding risk, making good choices, and being creative. Having the same voices on the team might lead to harmony, but it can also lead to groupthink. Groupthink is bad. Groupthink might get you an investment but it will also get you a memorial plaque in the start-up mortuary for shooting stars that fell suddenly and awkwardly. This might be a lesson for companies and investment firms alike.
Remember that your partnership is also not the business. When you start the project, you assume you guys will just ride the greasy rails of success all the way up to the final station of happiness out somewhere in the tropics.
But Imagine that your partner leaves you suddenly. They have found a more interesting partner in another start-up. They get a job offer they don’t want to refuse. They decide that you aren’t driven enough, smart enough, or just the right person to help make them wealthy.In fact, they want to keep the idea but they want you to go away
What will you do? Prepare yourself for these scenarios so you don’t have to try to creep your way to salvation in the moment. When someone ambushes you with bad news, they have the advantage. Protect yourself, think about the worst, and you will come out the other end in better shape. In fact, it will also help you think more carefully about who you might want to partner with.
12. Finally, the End Game
You are not going to build the company you expect. Why? In an incubator, your company is the product. Your company should be making a product, too, but that is a feature of your company. The product will help you sell your company.
Who is your customer, then? When is this circus all about?
In these ten weeks, you are going to be creating two different stories.
The first is the story of your company. What makes your idea special, what makes you special, what makes this time in history special, what is it so likely, almost providential, that this company you want to start will work. How is this team, this idea so good that the product itself is incidental, an engineering problem to be solved by time and money.
The second story is, of course, your product. The first story is really what matters right now, but the story of your product has to be solid. When you make the investors fall in love with your company, they are going to at first smile and feel warmth in their hearts. Then they are going to remember that they see themselves as sophisticated people who don’t just fall for anything. They are rational and savvy investors.
They will try to stress test the product. Like a potential lover, they will want to make sure they aren’t just giving their heart to anyone. If you have done your job well, they desperately want to, but they need to make sure you do own your own house, don’t speak with ghosts and aren’t uncomfortably crazy.
This should define your game plan for those three months. Try to think about the things that support both stories. For example, validation! Ahh, the magical world of validation. Validation is wonderful because it straddles the world of validating the premise of your company while saying that customers desire a solution. Your product could very well be that solution, why not?!
This is not a game plan. If you want to hear more than just get in touch. The purpose is to let you know what you should be focusing on in your time in the incubator.
Would you rather spend all of your time developing a product than a pitch deck that tells your unique place in the universe? An incubator is probably not for you.
Final Words
I have tried to help you understand the world in 12 points of varying length. 12 is a great number, rife with primes and ways of getting there. Much like success!
Remember, this is just gathered wisdom, much like wool. You must apply your own neurons to the task at hand as well. You have to decide what is useful, what is not, and what is wrong. And in the end you need to also listen to your heart, no matter how biased and poor at seeing the future it might be.
Thanks again for reading, and best of luck!
