The Errors of Enthusiasm
As entrepreneurs, we all think our ideas can change the world. Passion, persistence and a well-written business plan - complete with five-year cash flow projections – are all we need to raise the money we need to launch our business.
Yet, doing a startup is a bit like going big game hunting with a sharp stick. Passion and enthusiasm are essential, yet without objectivity, unbridled enthusiasm can lead to frustration and disappointment if not outright disaster.
In a recent interview, venture capitalist Jonathan Murray of Early Stage Partners described the startup process as a series of iterative experiments rather than a linear projection. Rather than writing a business plan with cash flow projections that have little or no basis in reality, Jonathan suggests approaching a startup as a series of experiments - a careful balance between objectivity and entrepreneurial zeal:
Experiment #1: Can we make a product? The objective of this first series of experiments (seed/pre-seed stage) is to build a prototype that can be shown to potential customers. This stage is typically run by the founders (often in their spare time) with bootstrapped financing such as personal savings, credit cards, friends, fools and family and other “creative” non-traditional sources.
Experiment #2: Can we get a few customers to buy the product? Once a prototype is built, the second set of experiments is to get a few customers to purchase the product and provide initial feedback. Once there are a few paying customers, it may be easier to quit your day job and acquire angel financing. The angels may also provide guidance and management experience that will help prepare for venture capital financing. (It’s also important to remember that VCs fund less than one out of every thousand new ventures.)
Experiment #3: Can we get a lot of customers to buy the product? Assuming your concept has high growth potential, once a customer base has been achieved, (and much of the risk has been eliminated) this third (growth) stage is where institutional venture capital comes into play. Often, this stage is managed by experienced “jockeys” rather than the initial founders.
Anatole France once said, “I prefer the errors of enthusiasm to the wisdom of indifference.” Passion and enthusiasm are essential aspects of entrepreneurship that should not be overlooked, and while Jonathan’s perspective may be oversimplified here, hopefully it provides a basis for a more realistic approach that can help manage expectations and eliminate much of the potential for disappointment and disaster, not to mention getting eaten alive.
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