Thinking About Success Factors

There is not much a VC or a start-up can do about market risk. Start-ups don't make markets, they (hopefully) participate. That is why I like market sizes that start with a "B". Everybody has an up and to the right hockey stick projection. The analyst are always wrong. I prefer teams who do bottoms-up customer driven market sizing. Don't even bother to paint me the 5-year out picture. When listening to a market entry strategy for a new company, the most important to me is the knowledge of market adoption over the next 12-18 months. Convince me that you know your customers and have a go to market plan that is reasonable. When you have to change consumer behavior or ask them to adopt a new behavior, you just raised the market risk by 10x. All these social networking deals are triple tall market risk deals. They hinge on a very large number of people changing their current behavior and starting to integrate these sites into their daily lives. Most people today in these networks are tirekickers. Tirekickers do not a market make.

Now to the fun stuff, execution risk. These are mostly factors under the control of the management and VCs. Can you hire the right team? Can you develop the product? Can you develop it in time? Can you define a defensible competitive advantage? Can you reach customers cost effectively with your message? Can you attract the right partners? I could write for the next year on the many success factors in each of these categories and many more.

You might not know it from reading the past few paragraphs, but what actually triggered this post in my mind was one simple characteristic. Awareness. Two things brought me here. First I am reading Awareness by Anthony De Mello. Second, in the past few weeks it seems that I have run into an above average number of start-up teams that are stunningly unaware of their own markets, competition, and strengths/weaknesses as a team.

Let me be even more specific. I believe a heightened sense of awareness is a critical sucess factor for a CEO (and the whole start-up team in fact). The CEO must be aware of and have thought through every major issue in the company and market. If, in a half hour presentation, I as a VC can stump the CEO with questions he has not considered yet, it is time to call ground control, we have a problem. If I can name competitors that the CEO doesn't have intimate knowledge of their strengths and weaknesses, again a problem. The CEO also must be eminently aware of their own strengths and weaknesses. A CEO who tries to run every department of a company is a disaster. When I was a CEO, I knew I was great at the outside thing with investors, customers and partners. I knew I didn't have the patience for internal operations. I hired a COO/President. The board didn't tell me to do that. I didn't think it was a threat. It was the right thing to do to maximize my strengths.

We have all heard about the importance of delegation, but I believe adequate awareness of ones' self is necessary for effective delegation. Awareness of the capacity of the delegatee is also essential. In my early days as a CEO I made the mistake more than once of dumping alot of work on someone with a good resume without really drilling on their ability or following up adequately. This will always end up coming back to you. It is ok to ask people to stretch, but know who you are stretching and how much. Don't let your people break.

Awareness is also related to engagement. An CEO who is truly engaged in her market will become aware of the major moving parts over time. An engaged CEO will worry about what he doesn't know about his customers, partners, product development life cycle, even purchasing patterns and expense reports. When you have a conversation with someone who is truly engaged with you there is an noticable difference. You may be surprised by the number of start-up teams I see that are not engaged with their audience while presenting.

The last point I will make around awareness relates to a CEO's ability to not drink too much of their own kool-aide. The CEO needs to lead the troops up the hill, but he has to be aware enough of the true state of the battle to make objective decisions. During the bubble, we saw many examples of CEOs being unaware that their market had disappeared underneath them. Many of these people hit the wall hard and fast.

Focus on being aware of every aspect of yourself and your business. Your market, company, and investors will thank you!

Coming Soon: How to test engagement and awareness