The Most Important Start Up Lesson I Have Learned From Fred Wilson

I often remind myself of a lesson I learned from Fred. There is no shortage of insight and wisdom that Fred shares on his blog daily, but one thing he said always sticks in my mind, as it rings true for me in the start ups I have been involved with.

I have known Fred for some years. We were sister VC’s investing with Chase before the ‘First Bubble’, but I hadn’t seen him in a long time. When we started Covestor he flew to London and kindly spent 20 minutes answering the teams questions in our infection ridden basement hovel. Near the end of the session one of the engineers put up his hand: “in your experience what makes for successful start ups?”. Fred thought about it for a couple of moments, paused and said “two things really matter: Frugality and Tenacity”

For me it is spot on. Even when it is not in your investors, your team or your own best interest, they are the characteristics that give you the best possible chance:

Frugality:

As CEO your number one priority is to keep the company in business. It is about survival before success. If you are still here in three years you have done a great job. Profit is the means of delivering value to consumers and having cash keeps you in the game. Everyone wants to be paid more, sit in fancier offices, run faster, swing harder but at the end of the day if you aren’t out fishing you won’t catch a fish (thanks for that one Rik).

Frugality in a start up:

• Treat every $ as if it is your own money: If you wouldn’t pay for that meal, or buy that iPhone if you were the only investor don’t do it. Just because the numbers are larger and it isn’t your own money treat it as if it were. It essentially is.
• Always ask if they have to have it, and it has to be now: There is a lot of fat that well meaning people will suggest you spend on, don’t till you absolutely have to. Insurance, recruiters, someone elses legal fees, server capacity, pensions, advisory fees, business cards – forget it. If you have ever done sales you will know it is 10x harder to make money than spend money, and the guys and girls in the ‘spending’ jobs often haven’t.
• Don’t be cheap with people: There is no benefit for example pushing to pay less than people ‘need’ to live on. By need I mean need to live the lives they want to be living. If that number is too high for you fine don’t take them, but don’t push beyond comfort. Candidates sometimes oversell themselves on the upside coming in but they will only be back for more when they realize it wasn’t enough. Invest in the environment, contribution, team cohesion – it is the excess people spend that more than pays back.
• Value your own and your teams time: There is a big difference between frugal and cheap. I have a dangerous tendency to do it myself rather than spend the money. Legal work for example – don’t get me started…Get value from your suppliers but get suppliers. Small teams are all about leverage. You are paying for ‘expensive’ people to be doing their jobs, and that includes you – if you are asking someone on $500 a day to save you $350 for a days chasing you are not being frugal, you are being an idiot.

Tenacity:

Don’t let it go. Start ups are a continuous process of iteration and reinvention, you never end up where you thought you were going. The latest buzzword for a change in model is ‘pivot’ but all the start ups I have been involved in, at least to some extent ‘pivot’ continuously. It is not about a wholesale change of business, ala Mahalo or Hashable (and credit to them as it takes big balls to start a completely new journey mid stream), but about constantly getting back on the horse. Not giving up. Persisting, holding fast, pushing and hustling. Being stubborn, tough, relentless and somewhat delusional in pursuit. You get on you fall off, you get on you fall off, you get on, you fall off, you get on, you stay on, you fall off, you get on, you stay on a bit longer (you get the idea). Only today I was reading how Angry Birds creators Rovio,  were on their way to bankruptcy shortly before they built their own game.

Tenacity in a start up:

• Don’t fear failure: My grandmother was a beautiful calligrapher. She once penned me a  Goethe quote that until too worn lived above my desk and is the entrepreneurs guiding principal:  ‘Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it!’
• Listen to everyone: There are a lot of people out there a lot smarter and more experienced than you. Tenacity becomes stupidity when you are not listening. When you are not listening to people who have seen it and been there. More particularly when you are not listening to what your audience is telling you. Tenacity is about holding on to the goal, not to the path.
• Don’t listen to anyone: A lot of the time a lot of people will know better. They will tell you you can’t, you shouldn’t, it won’t work etc. However rational you are there is a lot of gut in being a successful entrepreneur. Everyone looks smart in retrospect, it is easy to quit and much harder to hold on to your instincts. Listen to the voice inside – its more important than any of the others.

To their great credit Fred’s firm USV lives these same principles and I think it helps explain their own success. Not everyone remembers Fred’s failures last time round (Kozmo, PlanetOut etc) but they kept things lean and stuck to what they believed in. All of the VC bloggers go on about their smart investment criteria but spend carefully and don’t let go and you will build something great….