Virtually every early stage founder has to be opportunistic, meaning they pursue chances offered by immediate circumstances without reference to a business plan or strategy. Why? Because every startup needs staff, needs customers, needs funding, and for most founders there is only a relatively short runway, meaning that there is only so long they can go without any income. Sweat equity can only take you so far.
Examples of being opportunistic are hiring the guy from your university’s B-school who you met at a networking event as your VP of Business Development. Hiring is very easy; firing is hard. Being a founder is lonely and taxing, so adding another founder seems like a great solution to both problems. There are two problems with this opportunistic decision: one, the founder rarely has developed an org chart and hiring plan for their venture and prioritized hiring by position. And second, it is rare that startups need a VP of Business development. They need a VP of Sales; but many MBAs consider sales below them, thus try to join startups with a fancier title and a less quantitatively judged job.
Founders need to make better decisions! But how?
As Jeff Bezos writes, there are two types of decisions:
Type 1 decisions are not reversible, and you have to be very careful making them.
Type 2 decisions are like walking through a door — if you don’t like the decision, you can always go back.
The mistake many startup founders make is to habitually use Type 2 decision-making process to make Type 1 decisions. These companies are likely to go extinct before they get large enough to make the opposite mistake: using the heavy-weight Type 1 decision making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.
Type 1 decisions include hiring for your senior team and key individual contributors; taking on an investment that doesn’t give you the right to buy out the investor on acceptable terms; entering into exclusive deals with partners or vendors; entering into contracts with no termination date or a weak or non-existent set of termination terms and conditions.
Type 2 decisions include your company’s name and its logo; where you locate your offices; your company’s tag line; and hiring contractors.
The way to make Type 1 decisions is to be strategic, meaning you identify the company’s long terms goals and the plan to achieve them. Type 1 decisions should fit your plan. Otherwise known as a business plan. At various entrepreneurial programs at MIT, such as I-Corps, the business model canvas has replaced the PowerPoint presentation which in turn replaced the 20+ page text-heavy traditional business plan of previous generations.
One of the most important balancing act of the many founders must undertake is between short term and long term goals. It’s fine to be opportunistic on taking a sublet on an office or accepting friends and family investment. But taking an angel investment is moving the needle up to strategic, though you can make them reversible. Once the needle hits VC investment you are firmly in strategic territory and better have thought through the long term consequences to taking investment from this particular firm.
Decision making is a huge part of a founder’s job. For additional help on decision making see these six posts on Mentorphile.