Updated: Aug 24, 2021
The most limited resource of an early stage startup is not cash, it’s time. A company may have deep cash reserves, but if they are focused on building something the market does not want, the company will run out of cash and time.
Cash can buy more time, but at the end of the day, speed to build something the market needs (and has validated) is critical. The faster a company can navigate out of the early, highly risky exploration stages of a startup life, the sooner it can get into growth of a sustainable, repeating business.
Easier said than done.
What it takes for an early stage company to make it is often in direct contrast with what it takes for an organization to scale. Over the years, I've seen founders take very different paths to getting to the sustainable business, but all of them have these three things in common.
First, they identified a problem worth solving. Some founders appear to have an epiphany, but in reality these were often the result of a pain point they experienced or saw first hand. Sure, there are examples of inventions that turned into commercial hits, but the most pure form of technology entrepreneurship is an entrepreneur who saw or experienced a problem and built a solution. These kinds of companies can also have a high degree of founder-product fit as a result of the personal connection.
A great example of this idea is Ty Blount of Hammoq, a SRV portfolio company, who was a prolific reseller on eBay before he and Sid Lunawat came up with the idea of Hammoq, a software that powers online resellers.
Second, "get out of the building" to test a concept/hypothesis/product. Boardrooms are where ideas go to die. The market (and users and buyers of the product) are the ones who experience the pain the most (see 1) and often give the best insights.
At Coca-Cola, where I ran an early-stage corporate venture fund, we made sure any founder we invested in walked in the shoes of the Coca-Cola operational roles, from management to truck driver. This involved a 4AM "ride along" where they joined the bottling partners doing dozens of stops at retailers in the iconic big red Coke truck. Entrepreneurs AJ Brustein and Yong Kim saw the problem that these truck drivers and merchandisers had when they had an unplanned request from a retailer (like more Fanta, different package size, etc). Often, the drivers had to schedule a follow up delivery for another time since they didn't carry extra product and had a packed schedule. They realized many of the idle gig workers nearby could help solve this problem. That was the genesis of Wonolo.
Third, the best entrepreneurs design short sprints to test a concept quickly and efficiently. This one takes deep practice, but being able to hone in on the most critical assumptions (the deal or company killer assumptions) early on forces the company to either validate and keep building, or invalidate and pivot. We praise founders for having grit, but I’ve found that the ones who are innately curious and want the market to react are the ones who make the most of their resources at this stage.
Another startup we invested in at Coca-Cola used this method to quickly test a concept and ultimately pivoted. Their first idea was to take a wearable sensor from a major university that had tremendous research tied to it and with Coca-Cola's backing, design a sustainable product around it. Very early on they validated that the product worked wonderfully. It tracked (and predicted with great accuracy) how much sodium an extreme endurance athlete was losing, which could go on to predict when their performance would decline. And so, the solution was to drink Powerade or another Coke product to replenish fuel. But the level of precision the sensor offered was just too granular for its intended use case.
As a result, they shelved the idea and pivoted to an AI data solution that prescribed the right product mix in a cooler or retailer's shelf. That pivot, done at the right time, allowed the team to use the cash they had in the bank to leverage the remaining runway they had. That business has gone on to raise tens of millions of dollars and is on its way to becoming a unicorn.
Company building is hard at any stage but especially at the early stage. It's far more intense and complicated than these three overly simplified points, but many ultra-successful companies have employed similar tactics to get going to either validate (or kill) a concept as quickly as possible.