Experienced entrepreneurs know the scary truth: Failureâs tentacles lurk everywhere. Competition obliterates once-unique advantages. Products underwhelm customers. Partners disappoint. Co-founders clash. Key team members underdeliver. Critical technology hits a wall. Regulations change. Costs outpace revenues (by a lot). Funding dries up. And the list goes on.
But even more than failure, battle-hardened startup founders fear slowly losing control of their startupâs destiny, the venture equivalent of death by a thousand cuts. Strategy drifts as trial and error eviscerate their core vision. Evolving demands of early customers for custom product features consume already slim engineering resources. Employees lose passion for the undertaking when market adoption is slow to materialize. New investors urge course corrections towards all four cardinals of the compass. The ventureâs journey becomes increasingly chaotic and confused. And, in the most agonizing erosion of control, dilution of ownership through successive rounds of financing shrivels both the founderâs influence and their reward, even if the venture eventually succeeds.1
These are not the concerns of first-time entrepreneurs, who, like youthful professionals everywhere, donât yet know what they donât know. Inexperience and naĂŻvetĂ©âalong with a raft of books that oversimplify the entrepreneurial challenge and breathless media hype about success storiesâbreed irrational optimism and confidence. Rather, these are the concerns that keep experienced entrepreneurs up at night. Amazingly, hard reality doesnât dull the enthusiasm of most. As they mature (two-thirds of startup founders in the United States are between 35 and 54 years old2) they sharpen their skills and deepen their commitment. Spending a decade or longer iterating one venture, or starting and stopping a stream of new ones, the journeyman entrepreneur spins with the grace of a dancing dervish, not out of control but into control. Until they master the art of venturing and their startup becomes their masterpiece. This book is for them.
Patient and Persistent Venture Craft
In the winter of 1998, Joel Schatz returned to his apartment in San Franciscoâs Haight Ashbury neighborhood with a $250,000 investment in his fledgling startup, Datafusion, from the elders of the Oneida Native American tribe. That morning, he had pitched them his supersized vision for solving the worldâs problems through softwareâyet to be designed, coded and soldâthat would, he promised, reveal the interconnectedness of all things. Joel, an experienced entrepreneur, predicted his future products would transform how people shared knowledge, discovered innovations, resolved conflicts, improved productivity and protected the environment. Talk about testing the limits of credulity!
But the Tribal Chief took one look at the beautiful poster-size systems diagrams that Joelâs wife, Diane, had designed to illustrate the vision and said, âThis is the digital medicine wheel! Weâre in for a quarter of a million.â
A few weeks later, I met Joel and Diane at their office. He looked like a hippie sage, with long beard, hair pulled back in a ponytail and wire-rim glasses. After relating the story of his newly recruited seed investors, he asked: âWhat do I do with the money?â I stared at him for a moment, unsure of what he meant. âHow do I build a company? Thatâs what I want you to help me with,â he explained.
Early in the stories of successful entrepreneurs, pluck and luck (the formula popularized by Horatio Algerâs dime-store ârags-to-richesâ novels of the latter 19th century) sometimes combine to ignite a catalytic spark. For most entrepreneurs, though, combustion of this sort is only one of the initializing conditions for startup incubation. Crafting a sustainable new venture also demands they learn to apply the right skills and tools at the right times. Over the next two years at Datafusion (later renamed Metacode Technologies and sold for $150 million), I learned how to incubate a startup in an uncertain environment with limited resources. Startup failure rate is highest during this delicate phase as new ventures struggle to progress from vision to proof-of-concept.
Initially, having just led the redesign of the new product introduction (NPI) process at a $2 billion-a-year high-tech company in Silicon Valley, I believed we could simply apply a streamlined version of the same NPI blueprint to incubate Datafusion. After all, like Datafusion, the large company had been bringing complex, innovative products to market in a fast-growing, highly competitive market. I quickly learned, though, that Datafusionâs youth and size fundamentally altered the required approach.
Translating Joelâs grand vision into an initial product and winning beta customersâthe early proof points so vital to incubationâimmediately presented new challenges. The number of tasks demanding attention often overwhelmed our small team. We struggled to maintain focus. And, in an emerging market, the broad range of potential target customers, a lack of familiarity with their needs and behaviors, and the complexity of solutions we might design far surpassed our capacity to explore and test them all.
Yet cutting corners and making hurried decisions could have had catastrophic consequences for the yet-fragile venture. The pace could not be rushed. Cadence trumps speed at this stage of a businessâ life, commonly known as the seed phase. Startup incubation, it seemed, was more exploration than engineering, more art than science. I call it âventure craftsmanship.â
Masterful Exploration
What is a venturer? The term applies to explorers like Marco Polo, the Italian merchant who mapped and chronicled his travels to Central Asia and China in the latter half of the 13th century,3 as well as to adventurers like Joshua Slocum , the American master mariner who completed the first solo circumnavigation of the world in 1898. They shared an eagerness to undertake risky exploration of unfamiliar markets and regions.
Starting in the late 15th century, advances in shipbuilding, cartography and navigation helped Portuguese and Spanish explorers reach lands previously unknown to Europeans. The so-called Age of Exploration (also known as the Age of Discovery and overlapped by the Commercial Revolution) led to Columbusâ accidental discovery of North America and Magellanâs opening of a westerly route to the Pacific and Asia. Further innovations4 in technology and finance helped stimulate Europeâs economic expansion and the emergence of a consumer society that enjoyed imported spices, coffee and tobacco at home and in rapidly spreading coffee houses for three centuries prior to the Industrial Revolution.
While governments funded initial expeditions, the emergence of chartered companies like the Dutch East India Company and the British Company of Merchant Adventurers stoked the commercial success of this period. Merchants, navigators and investors partnered via stock-trading ventures.5 Initially, investors made direct investments in individual expeditions, but given the catastrophic danger of losing cargos to storms or piracy, they subsequently mutualized risk across a portfolio of ventures.
Much later, in the 1960s and 1970s, venturing became associated with activist investorsâventure capitalists, or VCsâwho assumed considerable financial risk in order to fund new businesses too young or too innovative to qualify for bank loans, hoping to earn returns far in excess of their invested capital. These early VCs, who were almost exclusively successful former entrepreneurs, rolled up their sleeves and worked side-by-side with the startup founders they funded. They shared expertise about incubating and scaling new ventures as well as knowledge and relationships specific to the targeted market opportunity.
But as trillions of dollars flowed into venture capital from the 1970s until today, the activity became professionalized by the arrival of lawyers and bankers. The new VCs transferred risk to limited partnersâoften large institutions like pension funds but also wealthy individualsâwho provide most of the financial capital. The VCs, receiving rich management fees and benefiting from favorable tax treatment of capital gains, reduced their personal exposure to almost zero.
Today, the label âventurerâ seems more suited to startup founders setting out to realize their dreams than to professional investors. Though often poor in cash, they dare attempt to create new markets or transform existing ones. Contrary to often-heard hype about young innovators making millions in a flash, these entrepreneurs learn to cope with the likelihood that the journey to success will take a decade or longer and that most days will be colored by the ever-present threat of imminent failure.
Masterful Craftsmanship
What is a craftsman 6? Today, the term refers to both hobbyists using their leisure time to make handmade objects and to a dwindling number of artisans dedicated to sustaining disappearing trades. But from medieval to pre-industrial eras, craftsmen were entrepreneurs applying vocational or artistic knowledge and innovations to professions as disparate as papermaking and the merchant marine.
Etienne Boileau, French royal provost and trusted advisor to King Louis IX, was the first person to catalogue the trades of his tim...
