Symbiotic or Parasitic?

I'm working with my MBA class these days on the various challenges between company founders, founders and funders, and multiple funders. Lots of permutations if you have multiple founders and several rounds of funding, and it deserves some thought in the early days of a venture. Some of our work focuses on cases, articles and discussion about the "long shadow" that early funding decisions cast into the future of the organization. I encourage entrepreneurs to think about how they can design an organization that can best balance these sometimes competing perspectives.

But while organizational design is important, the day to day relationships are also important. Last week, our class centered around the question: "can founders and funders get along" ... and eventually prosper? To many, the answer is "NO." Not just for my students, either; I hear this sentiment from many who are interested in being entrepreneurs, and from entrepreneurs as well. Yet when pushed for examples, one discovers more legend than fact. Somehow, it has become widely believed that investors are bad for ventures. Many people seem to think that investors want to come in and steal the company away from the founders. I think this is a rare case, and usually occurs after a "series of unfortunate events" (as the saying goes).

What is the effect of this "venture legend"? If an entrepreneur starts out with this mindset, might they create a self fulfilling prophecy? Why would a good investor invest in a venture team that views them with suspicion? To paraphrase, "to make an investor trustworthy, you must first give them trust." How can founders and funders get along?

Here is my advice for start ups that require outside investment.* An investor is paying you to do what you want to do more than anything else in the world. (And if this isn't true, your likelihood of funding, or success, seems remote to me). At the same time, you need to create value and share some of it with your investors. As others before me have advised, think about getting money as "hiring an investor." And, just as with any new hire, work to build a trusting, informed, respectful, mutually beneficial relationship from the beginning. Avoid the trap of seeing an investor as a potential parasite, sucking your cash and resources, intent on taking over the host. With your investors, focus much more on offense (how they can help your venture) than on defense (how they can harm your venture).** From identifying potential investors, to meetings, to negotiating terms, to building your board. Offense.

The entrepreneurs I respect build a symbiotic ecosystem around their company, including their relationships with investors, suppliers, employees and co-founders. As with many systems, these interconnected relationships seem more resilient when the inevitable set backs do occur.
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*You may have skipped over this clause. Don't. Deciding on whether you need outside capital, and the form it takes (debt or equity) is one of the more important decisions you will make as founders.
** Note I did not say "don't play defense." I said focus more on offense.

5 Steps to be H.E.R.O.ic

Actually, Tina,* we do need another hero. A lot of them. And we need the right kind of heros.

I am talking about H.E.R.O.s: those Human and Environmentally Regenerative** Organizations that do good by cleaning up bad, so that no matter how much they grow, the earth and human society are better off.

Imagine enterprises whose goods are good, and whose services serve. Who produce clean water like Water Health International. Who produce clean air like Envirofit. Who produce healthier children like JustMilk and A-Z Textiles. Who produce better sanitation like Ecotact. Who produce sight like Aravind Eye Hospitals and VisionSpring. Who produce cleaner fuels. Sustainable fisheries and forests. Better educated children.

I like to imagine enterprises that focus not on return on capital, but on return OF capital. Back to the ecosystem. Enterprises that replenish and restore natural capital, human capital and financial capital. Cradle to Cradle capital. Maybe I am a dreamer, but I believe that we need more H.E.R.O.s, and I spend a lot of time working with H.E.R.O.ic entrepreneurs. They are out there. And here are my observations on what it takes to start being H.E.R.O.ic:

Pick one opportunity. This is your BHAWG. Your quest. Phrase it as a question.*** Look for bright spots****to guide you. Imagine sharing your idea with MLK, Gandhi, Mandela. What would they say?

Ask two questions. What sucks? What are YOU going to DO about it? The second question is key. Otherwise, you are a whiner. Not an entrepreneur.

Solve three S's with your business model. It needs to be sustainable, scalable and have a significant impact. Sustainable means you can afford to stay in business, and have a symbiotic, rather than extractive, relationship with communities and the environment. Otherwise, when you scale, you fail. If you pull it off, you will begin a self reinforcing upward spiral of goodness. Call it a tipping point (if you like Malcolm Gladwell) or a forest fire (if you are an educational arsonist or a network theoretician).

Build your business on four foundations. Find an attractive market. Bake in your competitive advantage (that which makes your solution much better than alternatives). Recruit a team with a superior capacity to execute the plan and improvise when needed. Create value and share it with stakeholders (you must first make something that matters out of nothing (an idea), then make more and more).

Build a network based on five deals. Customers. Founders. Co-workers. Suppliers. Investors.

Got it? Then get going. You too can be H.E.R.O.ic!

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*From Thunderdome . In which Mel was a hero. Right?

** Substitute "Restorative" if you like the word more.

*** Shamelessly borrowed from Paul Graham's essay: Ideas for Start Ups

**** I am excited by Heath brothers upcoming book "Switch" which addresses the issue of not looking for problems to solve, but bright spots to be copied. Here's an excerpt.

Big Questions

There are a lot of big questions out there. For some, I have no answers. For some, I believe I at least have some insight. And I use those to organize* my MBA course.

So, here are some biq questions about innovation and new ventures that I plan to ask some 300 MBAs this semester:

1. What on earth is an idea worth?
2. What do start up teams do?**
3. How do you make a business model?
4. Bake it in or bolt it on?
5. Can you have it all- value, values and valuation?
6. Can founders and funders get along?
7. Are start ups pretty when they are born?
8. Can you keep your job while you start a new venture?
9. Investors- deal or no deal?
10. How do start up investors control risk? (and does it work?)
11. What are the leading causes of start up death?
12. Should entrepreneurs be acquisitive?
13. How do you pitch in the big leagues?
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* Some of my students assert this is a verb that should not be used to describe my classes. These students mistake the verb "organize" with the adjective "organized." One describes the effort put into the undertaking, the other its result. So, I think I can use the verb. And, the adjective is not one for which I strive.
** The question some students ask me during this class is: "why are we watching South Park in business school?"