“Give me a great start-up team with a mediocre idea over a weak team with a great idea every time. Because a great team will know when to pivot and they will trust each other to execute. A weak team will simply fail.”
— Bernhard Schroeder
Entrepreneurs and startup founders have different personas and VCs have a set of qualities that they want to see in a good entrepreneur: Subject matter expertise, leadership, execution skills etc. All these skills are important. But when we interact with entrepreneurs, we first look for the underlying passion and drive of the individual before evaluating any other aspect of the idea. The mentality or mindset really segments the entrepreneurs into two categories.
Type 1 Entrepreneurs
The first type entrepreneur has no other objective than to make as much money as possible in an opportunistic way. He/she is generally a good talker and only has in mind the desire to see themselves one day on a boat with sandy beaches in the background. This founder sees a technology trend and opportunistically jumps on the bandwagon to create a startup. Then he/she tries to convince everybody around him that what the idea is going to make a ton money for everyone with a clear exit strategy within a definite time horizon.
Type 2 Entrepreneurs
The second type entrepreneur wants to do something with his/her life and is driven to give it a larger meaning that is immediately apparent in the way he/she talks, in the expression on his/her face, and the tone of his/her voice. This founder will not speak about the product or even the technological superiority of his idea. For him/her, these aspects are secondary. This founder’s pitch is not a sales pitch at all. What he/she wants is to achieve a larger purpose with support from others. The product is only the fuel that will get him/her to the destination to bring change in status quo. This founder will tell you why he/she decided to take the step. He/she will tell you what motivates him/her. In short, the underlying passion to start the company. And he/she will talk about it sincerely, using words that resonate. Facial expressions to show passion are universal and not the product of a culture. We feel it in the room when an entrepreneur is passionate. Passion is difficult to fake.
A founder who simply tries to please to get investor favor and especially early-stage capital, will betray his true intentions in his expressions and language. A good liar will be able to fool for a while, but not for long if one pay attention to his body language and how he expresses himself. And if we look at his business plan, and read between the lines, founder’s true intention reveals itself. The opportunistic founder discusses about “How”, focuses more on revenue or EBITDA, investment exits, state of current market, and valuation multiples etc. at the onset. The truly purpose driven founder on the other hand discusses about his vision, the “Why” of his idea, his journey/experience so far, the bigger changes his idea can bring, and the type of team he need to build that product etc. to complete the mission. Such mission driven entrepreneurs will build a solid team that will be able to face the challenges and trials that will inevitably mark his journey. The “why” of the mission will bind his team together and make it stand during challenging times.
We like mission driven early-stage founders. We absolutely deprioritize early-stage founders who talk about valuation, EBITDA, multiples at Pre-Seed, Seed, Series-A and even at Series-B stages as the early-stage vanity metrics create distractions for the larger objectives. At super early stage, it is all about founder’s journey, future vision, underlying passion, larger objectives etc. We believe that if there is one thing that every VC must pay attention to at early stage, it is the “Why”. Why the entrepreneur does what he does. From this “why” will come the culture, which, in turn, will unify the team and enable it to react and adapt to the slightest setback, the mode of execution, the grandness of the business and a superior return on total invested capital. At Service Ventures, we take a few simple ways to find out the underlying passion of the entrepreneur and if an idea is going to succeed or not over various industry scenarios. One process is probing the founder to get an understanding of his/her passion/idea at four or five levels below the surface of pitching. To get a feel for the problem statement and the founder’s motive, we ask him/her: “Why?” And we keep asking “why” again and again until we understand 1) the problem, 2) the envisioned solution, 3) the urgency of need/demand, and most importantly, 4) founder’s drive and motivations to undertake this endeavor.
In our experience, the mission driven founders usually originate from one of the following backgrounds:
Entrepreneurs who start off by solving a problem they faced personally
One of the most straightforward ways to notice a solid idea for a valuable startup is when a founder is solving problems they faced in their day-to-day life, workplace, or communities they cared about. Ideas backed by problems the entrepreneur had first-hand experience with is a sure way to generate sustainable passion and drive. Once the founder has identified what those problems are, they then figure out what solution works best, build something for himself/herself, find more people who have the same problems, and get them to use the solution. We like this very fundamental bottom-up approach of a validated startup idea.
Entrepreneurs who start off by offering an alternative solution
This beginning requires founders to think in terms of the existing solutions. They evaluate the disadvantages, the cons, why they suck and then generate alternative solutions as their startup idea. Typically, the negative attributes of existing solutions are complexity, high cost, slower speed, friction with ecosystem, lack of openness, scalability, and limited usability. The entrepreneur embarks on by demonstrating a 100X RoI of his/her new alternative solution to potential customers. For example: The alternative of taxi → personal drivers. Instead of wasting time standing in line, you can book a driver from your smartphone and a car will arrive within 3 minutes. It’s fast, convenient, and hassle-free.
Entrepreneurs who start off to create a brand-new category
Some entrepreneurs have the idea to create an entirely new market, new product, or service category. In other words, he/she innovates beyond existing competitors by designing his/her own space. In management strategy, some call it ‘Blue Ocean’ with no existing competitors as opposed to ‘Red Ocean’ that is full of existing competitors. In the past 25 years, newer companies that beat incumbents are brand new category creators rather than offering incremental benefits. For example, Airbnb - vacation rental marketplace, Netflix — online movie streaming, HubSpot - inbound marketing.
We find that the great founders are intellectually curious. Always asking: What could be done differently in an industry? What are the new ways of doing things? In their past, they were active in local founders’ community, were analyzing market opportunities to discover unmet needs where their solutions could fit and monetize, prototyping their ideas and creating solutions for day-to-day problems, participating in online hackathons. Understanding founders’ mentality is where bulk of our focus goes during first few weeks of engagement with any startup. Once we are sure that we are dealing with purpose driven and insightful founders that have the right profile to carry out their own mission, as next steps we may discuss 5) the strategy to reach and meet the unmet demand for their solution in the marketplace 6) the associated total cost to deploy the strategy and 7) how much return can be expected if founders accomplish their objectives. Entrepreneurship is not a walk in the park. Founders can have great idea, but they will fail if founders don’t have a larger vision and true passion/drive behind it.
/Service Ventures Team
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