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So what exactly are startup investors investing in anyway?

 

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If you ask most budding entrepreneurs what it is that investors put their money into they will tell you: the idea! Everyone is looking for that breakthrough “innovative” idea that will attract VC money. And I can’t blame them. If you try to reverse engineer many great companies you will find a great idea: Google with PageRank, AirBnB with renting out space in your own house or apartment to strangers, SnapChat with its disappearing messages and photos, eBay with online auctions, PayPal with sending people money via email and on and on.

But rear view mirrors don’t always have 20/20 vision. Why it may look like VCs made their billions by betting on breakthrough ideas like Airbnb and Netflix, that’s not the way it really works.

I still remember asking Paul Maeder, a very very successful VC with Highland Capital, who had invested in my first two companies, how he made his investment decisions. The most important element to him was not the idea or the market opportunity, but the team. His experiences was that most successful startups end up with a different idea, business model and/or target market than they started with. So the original idea was not that important. And of course if the idea changes the market opportunity changes. So the team was by far the most important factor in his decisions. But he went a step further for me. He told me that the CEO was at least 70% of the team. What this all boils down to is that most successful VCs invest in great CEOs. Of course, it helps that those great CEOs come up with great ideas, but their ability to execute is paramount. Google was far from the first search engine and Facebook was not the first social network.

The story in today’s Wall Street Journal WeWork: A $20 Billion Startup Fueled by Silicon Valley Pixie Dust is subtitled CEO Adam Neumann sells investors on his vision for communal workplaces—critics say it’s an overvalued real-estate play [emphasis added] has multiple quotes about how VCs were really investing in CEO Adam Neumann, not the idea of communal workspaces.

Fueled by showmanship, an expansive vision and the occasional shot of tequila, Mr. Neumann has propelled the New York-based office-space provider into being one of the world’s richest startups.

Mr. Neumann has dazzled tech investors by portraying WeWork as a Silicon Valley-style company that provides a “physical social network” for millennials.

Here’s a quote from one of the VC investors that makes it clear they invested in the CEO.

Bruce Dunlevie, a partner at Benchmark Capital Partners who sits on WeWork’s board, said charismatic, creative and motivated entrepreneurs are valued differently by investors “based on their ability to figure out how to skate to where the puck is going to be,” he said. “Adam has many of those qualities—he’s just a very charismatic, compelling person.”

And Neumann also dazzled a real estate investor as well:

Joel Schreiber, a Manhattan-based real-estate investor, said he was captivated by Mr. Neumann and his vision early on. After a three-hour conversation in 2010, the entrepreneurs offered him a 33% stake in WeWork for $15 million. “I didn’t negotiate—I said yes,” Mr. Schreiber said. “I loved Adam’s energy.”

Many VCs I’ve talked with believe that if you bet on a great CEO he (or very seldom, sadly, she) will figure it out somehow. Pivoting is a good thing, so long as you eventually end up in the right place!

“Let’s give him some money and he’ll figure it out,” said Mr. Dunlevie, the Benchmark partner in charge of the deal. Benchmark led a $17 million funding round in 2012.

So when you are thinking about raising your first round of capital forget about fancy Excel spreadsheets showing how you’ll be more profitable than Facebook in 3 years (and I’ve seen a lot of those!). Forget about the fancy slide deck. Look in the mirror! As founder you are the number one asset of your startup. Do you have the drive, the charisma, the vision, the persistence, the grit that will convince investors you are the one? Here’s a hint, virtually all great CEOs, whether or not they are extroverts have tremendous ability to sell their vision. Steve Jobs was the ultimate example, but virtually all successful CEOs I’ve met have such a burning passion for their vision that they stand out from the herd, and thus will be heard, despite the literally thousands of competing pitches aimed at investors. Great CEOs push the envelope, and occasionally like Travis Kalanick, former CEO of Uber, they go too far. But better too far than not far enough.

 

Mentoring a narcissist isn’t that different from mentoring anyone else

 

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The Harvard Business Review article How to Mentor a Narcissist by W. Brad Johnson and David G. Smith might be off-putting to most active mentors and potential mentors. After all, how often do you end up mentoring narcissists? In ten years of mentoring I think I’ve come across one or two, but both of them were so narcissistic that they didn’t feel they needed any mentoring! They were just there because mentoring was part of a program they were in that gave them a grant to work on their project, otherwise they wouldn’t have even showed up for the first meeting.

But HBR articles are almost always worth reading, and this one is also, as the authors strategies for mentoring a narcissist are actually very helpful in mentoring anyone. And should you happen to get assigned a narcissist as a mentee you’ll be well prepared. So I’ll give you the tips, with my annotations. To get the authors’ amplifications of their strategies and a lot of background on mentoring a narcissist, please read their original article.

First, work on your empathy

No matter who your mentee is, you need to be empathetic, meaning that you need to have the ability to understand and share the feelings of your mentee. However, that is quite different from being sympathetic. To be sympathetic means that you show approval or favor towards your mentee’s ideas or actions. The best mentors are not sympathetic, as they are not judgmental. We need to understand our mentee’s ideas and actions, but we have to be very careful about judging them. The best practice is to help your founder to elicit the pros and cons or their idea or action. Once they have done that you can then help them build a flow chart to better understand the ramifications of pursuing their idea or taking action. In other words the best mentors facilitate decision making, they don’t make decisions for their mentees.

Listen and discern

Listening is the number one requirement for mentors. You don’t learn anything when you are talking and you need to learn as much as possible about your mentees, their goals and objectives and the context in which they operate. But listening is necessary, but no sufficient. You also need to discern what is important and relevant in what you hear. Not everything your founders will say will be something you need to react to. We have limited times with our mentees – usually 60 to 90 minutes, so discerning what needs attention, what can wait, and what is simply not relevant is important to be efficient with your time and your founder’s.

Begin with mirroring

Mirroring means providing your mentee affirmation, understanding and acceptance. I’d be careful with this strategy as you risk getting into the judgmental area here. The best technique is to playback what you have heard to make sure you understand it. So when your founder gives you a disquisition on their business model you may want to mirror what they said. “So what I hear you saying is that you believe the best way to generate revenue is to license your application to a partner who can handle sales, marketing, and customer support because you really want to concentrate on product development. Is that right?” This technique is non-judgmental, but does demonstrate your understanding. Though after fully understanding the founder’s business you may decide to nudge them into a different model. So be careful with the “acceptance” piece of this strategy.

Use Socratic questions to build insight

Asking the right questions at the right time is second only to listening and discerning in importance for mentors. Sometimes you may need to be persistent in your questioning, but always be gentle. Our job is to guide, but not to push. Asking the right questions can help the founder come up with answers themselves rather than looking to you to provide the answers.

In conflict, lead with how you feel

I’ve rarely run into conflicts with the founders I mentor. But in the rare occasions that you may have to deal with a confrontative or aggressive founder, this is good advice. Letting the founder know that what he or she is saying is making you feel that perhaps they aren’t ready to take advice or guidance from a mentor can help to defuse a conflict. But by being generally non-judgmental and when you do make a judgement making sure you are not judging the individual but only their idea or action, you should be able to avoid conflicts from arising.

Take care of yourself

Again this is good advice when dealing with a truly difficult mentee who may provoke feelings of frustration or anger with their behavior. In the rare occasions when you run into this getting guidance from other mentors can help greatly. And in general you need to come into mentor sessions feeling calm, relaxed, well-prepared and ready to be helpful. So manage your schedule and other demands on your time so you won’t be distracted by other obligations or in a rush to get to your next meeting.

Let’s hope that you never are in the position of having to mentor a narcissist. But if you are, this article is must reading. And virtually all founders have large egos – you have to in order to be an entrepreneur and truly believe 100% in what you are doing – so these strategies can and will work with any founder you mentor.

 

6 Traits to look for in a mentor

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Jennifer Sawyer, writing in the Dailyworth Work column, has an excellent list of traits to look for in a mentor. While like many other articles about mentorship this article is focused on career mentoring, not founder mentoring, these traits apply equally well to the mentors of entrepreneurs.

Here is her list with my comments appended:

They’re Different (Enough) From You

Typically mentors of founders tend to be former entrepreneurs or business people who have had success and want to pay back. And typically founders are far younger, with less gray hair! So the superficial characteristic of age is an easy difference to chalk up. But be careful of other traits, especially if you are in an academic mentoring program. If you majored in computer science you may well want a mentor who majored in architecture and design instead of CS. Chances are you already know your former professors and peers in C.S., but don’t know anyone in the design field. Given the importance of design in today’s product development process you’ll benefit from that difference. And the converse is equally true. If you majored in graphic arts you may want a mentor with a C.S. education given the importance of data analytics and software in business. So look for a different, but complementary academic background.

They Have Wide-Ranging Interests

Studies have shown the value of curiosity in founders. But how do you measure or even detect curiosity? One way is by how widely a person’s interests range. So no matter how accomplished a prospective mentor may be, if he or she is very narrowly focused, say purely on how to build successful ecommerce companies, even if your interests align, you will benefit from diversity of thought, experience, expertise and contacts. Is your prospective mentor a lifelong learner? Do they participate in non-profit activities as well as business activities? One thing you are looking for in your mentor is perspective, a point of view different from yours. Otherwise you risk creating an echo chamber effect where your mentor may think so much like you that neither of you will spot a serious flaw in your business plan.

They Push You Out of Your Comfort Zone

Mentors give feedback, offer advice, and provide guidance. But if you really want to grow as a founder you need a mentor who will push you in the direction you need to go, but might be uncomfortable going. A great example is doing customer interviews. Many people are very uncomfortable approaching strangers, or even if they are introduced, talking with them. But the post-docs in the National Science Foundation’s I-Corps program for entrepreneurs are required to talk to as many as 100 prospective customers – not including friends, family or acquaintances. Often CEOs may want to delegate talking to customers to their sales director. This is a huge mistake! As a CEO you need first hand, not second hand, knowledge of your customers’ problems and what they think of your solution. So for technical people, going on a sales call may be outside their comfort zone. For a sales person participating in a competitive review of the company’s product may be equally uncomfortable. Your mentor should learn enough about you and your business to give you a gentle, but firm push in the direction you need to go when deemed necessary.

They Won’t Just Tell You What You Want to Hear

A key role of mentors is to provide feedback, for example on investor pitch decks. We have seen hundreds or even thousands of them. And more importantly, we know what works and what doesn’t. So very often we find we have to tell founders that either the format, content or both of their pitch deck simply won’t cut it. Even to the extent of telling the founder to start all over again. The saying amongst athletes is No pain, no gain. If a mentor is simply praising you to the skies that isn’t helpful. I’ve yet to find anyone who improved their skills or performance by hearing nothing but praise. What you need is constructive criticism; criticism aimed not at you as a founder, but at your pitch deck, proposed sales commission plan, or any other aspect of your business. While it might sting a bit to hear it, your mentor may well prevent you from getting really hurtful rejection down the line.

They’re Reflective

A mentor who has had success is necessary, but not sufficient. You want your mentor to be able to reflect back on their experience: what worked? what didn’t? Why? How did they recover from failures? What did they learn? If a life unexamined isn’t worth living, surely a successful entrepreneurial career unexamined is not worthwhile either. But while I often share my (many mistakes) with my mentees I ask them to be creative and make their own mistakes – don’t make the same ones as I did.

They Value People More Than the Bottom Line

I see my role as a mentor as very straightforward: to help my mentees succeed. However, sometimes it is not 100% clear what success actually means to a founder. Is it making a lot of money? Peer recognition? The joy in helping others? The reward of solving a tough problem no one else has cracked? Your mentor should help you clarify what you value, because only then can he or she really help you. As the saying goes, If you don’t know where you are going, all roads will take you there.

Take the time to get to know your prospective mentor, just like you would want to get to know a prospective hire, investor, or partner. Only by investing time – preferably face to face – will you be able to ascertain if your mentor has these important traits. And keep in mind, no one bats a thousand. Use these traits as guide posts, not filters. At the end of the day you need chemistry with your mentor, as mentoring is a reciprocal relationship – it has to work equally well for your mentor as for you.

 

 

Partnering – how to keep the band together

 

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I was reading obits for Tom Petty who died this week and came across a great quote from Tom: It’s easier to form a band than keep it together. Having worked with dozens of bands as a sound engineer in my 20’s ,I saw a thin slice of band life, basically how bands get along during their sound checks. Aerosmith, for example, were incredibly professional. They were extremely particular about their drum sound. In live sound reinforcement the hardest instruments to mike up are acoustic: drums, acoustic guitars and the human voice. Steve Tyler, the lead singer was a former drummer so he would sit in the drum chair while Joey Kramer, Aerosmith’s drummer supervised the sound mix. Then Joey would take over the drums and Steve would listen and perhaps ask for some slight adjustments. Only when they were both satisfied did the full band start their sound check. Other bands, whose names have been omitted to product the guilty, spent their time bickering over set lists, the relative loudness of their instruments, and how the stage should be setup.

So what does this all have to do with founders? Well first of all, musicians who form bands are founders! And they are certainly entrepreneurs as well. And like all talented people they have outsize skills and personalities to match. So much of what I learned about dealing with big egos in the music business helped me with big egos in the high tech world.

I often see startups racing to set up partnerships without thinking through the key strategic and tactical issues involved in partnering. So here’s a few principles to keep in mind.

  • It’s not a real partnership if money doesn’t change hands. In my first startup I tried hard to get IBM as a strategic partner, as at that time they dominated the personal computer market. But all I managed to get done was to have an IBM executive write the forward to one of our texts on how to use a spreadsheet in business. If your partnership is just about co-marketing and not helping the partners actually make money it’s unlikely your “partnership” will last too long or help your venture succeed. The pressure to generate revenue for both startups and establish companies is too strong.
  • Startups can’t help startups. There’s no doubt that incubators and accelerators like Y-Combinator and TechStars have proven that their networks of successful startups can help each other. But if you aren’t a member of one of these powerful keiretsu then it’s unlikely your fellow startup venture can help you make money. Why? Because they are too busy trying to stay afloat themselves. And partnering with another startup can end up being a major distraction for both parties. So while all rules have exceptions, focus on established companies that have capital to spend and credibility to share.
  • Have a company champion. The bigger your partner the more you need a single individual as contact point. But more importantly that single individual needs to believe in your company and be personally motivated to help you succeed. At Course Technology, an educational technology publishing company, we found that the directors of educational marketing at companies like Lotus Development were are obvious product champions. The champions will help you navigate the organization, get in front of decision makers, and get corporate attention – all very hard to do on your own.
  • Figure out what’s in it for them.  This is my basic rule of all business relationships, it’s not just applicable to partnerships. But without understanding what benefits will accrue to your partner you won’t be able to craft a mutually beneficial relationship. We always created partner presentations that closed with two slides: Financial Benefits and Strategic Benefits. The former is obvious, how we would help the partner generate more revenue. But strategic benefits may be more important for a big company. Your efforts may hardly move their revenue dial, but if they can learn something that they don’t know that they need to know that can be very valuable to them. For example, if you are a company that is using AI to improve some aspect of finance you may be an attractive partner for banks, private equity, and other financial players who may lack any in-house AI expertise, but who realize this is the hot trend today and you can help them get up to speed.
  • Set measurable goals. You need to have a written document that sets up what each party will be responsible for – who does what, when – and most importantly, how results will be measured. It is critical to manage expectations and the best way to do that is to agree on goals and metrics from the get go.
  • Communicate early and often – in writing. There are so many great communications tools today that there is no excuse for miscommunications. But if you have a meeting or phone call with a partner, make sure you follow up immediately with a written summary that includes todo’s for both parties. It’s far too easy to get into “I thought you said… but I thought you said!” type disagreements if you don’t document what you might consider casual conversations. There’s no such thing when it comes to partnering.
  • Keep Tom Petty in mind. The hard work in a partnership is sustaining it. If you don’t have the resources to keep up a partnership you are better off not entering into it. Partnerships take time and effort to provide fruit. Often big companies move much more slowly than startups. So you need to be patient, but persistent. Don’t over run your headlights. And make sure you are responsive to their needs.
  • Date before you marry. Partnering can be a great path to being acquired, as it gives you a opportunity for a test drive. The most important factor in making an acquisition successful is corporate culture and a partnering test drive will enable you to learn if your partner’s corporate culture is compatible with your’s. Likewise it gives the potential acquirer the time to truly understand your value and how your venture will fit in to their culture successfully.

Last night I watched the two-part series on Netflix, History of the Eagles. It’s a great documentary that will show you just how hard it is to keep a band together. And there are lessons to be learned about how to keep your startup together, as well as how to keep a partnership together. Even if you are not a fan of their music it is still worth watching to see two powerful founder/entrepreneurs in action.

Breaking free of conventional wisdom

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In June 1987, President Ronald Reagan defied Beltway conventional wisdom by urging Soviet leader Mikhail Gorbachev to tear down the Berlin Wall. PHOTO: ASSOCIATED PRESS

While The Wall Street Journal is busy shrinking its print editions – all European editions will be strictly digital from here on out, and it’s dropped various sections over the past few years in response to the death spiral of print advertising, I’m still a diehard subscriber. And the Saturday edition with its Review section is a highlight of a week’s newspaper reading, with lots of great reporting, book reviews, and insightful articles. Today’s article How to Break Free of Washington’s Conventional Wisdom In the age of Donald Trump, groupthink has driven so many to get so much so wrong is an example of the Journal’s writing at its best. This Ideas Essay may at first reading seem to have nothing to do with startups or mentoring. But upon reflection I believe it does, as we in the Boston/Cambridge area and our cohorts in New York City, San Francisco, Silicon Valley, Austin, and Boulder are all in our bubbles of conventional wisdom. Listening to conventional wisdom can be very dangerous for founders. So here are four techniques taken from the article to help founders avoid conventional entrepreneurial thinking, be it their own or from their advisors and mentors.

Get out of your bubble

Mark Zuckerberg has set the gold standard for this by vowing to meet and speak with people in every U.S. state by the end of 2017.

“After a tumultuous last year, my hope for this challenge is to get out and talk to more people about how they’re living, working and thinking about the future,” he said in a Facebook post announcing the challenge.

“For decades, technology and globalization have made us more productive and connected. This has created many benefits, but for a lot of people it has also made life more challenging. This has contributed to a greater sense of division than I have felt in my lifetime. We need to find a way to change the game so it works for everyone.”

Founders should consider creating some itineraries that take them to places they haven’t been before and won’t normally go to, like the Rust Belt or Deep South. Meeting and talking to people outside the East Coast/West Coast entrepreneurial bubble may provide new ideas and fresh perspective not to be gained from yet another Boston/Cambridge or San Francisco/San Joe networking event.

Build a system for hearing different views

Rahm Emmanuel, mayor of Chicago, has formed a “kitchen cabinet” of people outside his own staff to offer ideas and advice. When you build your strategic advisory board or choose a mentor look outside your network, perhaps to someone from a local small business, a large utility company or an academic institution not one of the usual suspects – the Ivy League, MIT, and Stanford.

Be ready for some discomfort

Going against the conventional wisdom, whether that wisdom is getting big fast or hiring only from the top schools, can be lonely and even nerve wracking. But startups by definition are outside the box, against the grain – name your own cliche. As Reed Hastings, founder and CEO of Netflix has said, Most entrepreneurial ideas will sound crazy, stupid and uneconomic, and then they’ll turn out to be right.

Show some humility

As Gerald S. Seib, author of today’s Idea Essay writes, “We can all do better in asking questions and actually listening to the answers. That’s especially important in Washington, where impressing others with how much you know sometimes gets in the way of finding out what they know. Just substitute your entrepreneurial enclave for Washington.

And to quote him again, Focus groups—in-depth discussions with small groups of voters—are even more valuable. But there is no substitute for person-to-person listening. Just replace customers with voters.

I’ve tried to get out of my entrepreneurial box today by reading an article about Washington politics instead of my usual diet of technology, entrepreneurship, the arts, and pro football. And what did I find but words of wisdom totally applicable to both mentors and founders. Sometimes you can get outside the bubble without even having to endure the rigors of today’s airplane travel.

 

Helping your staff to get into the flow state

Reading an article by Mark Cuban about how he fell in love with programming, to the extent that “hours passed like minutes” while he was coding triggered a memory of the something called the flow state.

Flow is when you are so totally engrossed in some task or experience, be it art, work or play, that you are in the here and now – not worrying about what will happen in the future or what has happened in the past. That feeling of being in the here and now is common to athletes, when they “get into the zone”; musicians, when they improvise; artists, when they paint; or a scientist immersed in an experiment, or anyone intensely involved in something that is simultaneously challenging and rewarding, as this diagram from Mihaly Csikszentmihalyi’s Ted Talk illustrates.

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The flow state is literally the sweet spot where your skill, be it basketball shooting, like Stephen Curry or piano improvisations, like Keith Jarrett aligns so well with the challenge you set for yourself that you are literally “in the groove.” All of your attention is taken up with the current activity, leaving no attention for anything else.

But what does this mystical sounding state have to do with startups? Plenty! As Mark Cuban and thousands of other software engineers have found, the challenges of programming a computer to do what you want are incredibly involving and exhilarating. Work doesn’t feel like work, it feels like bliss.

Imagine if those creative people in your startup could enter the flow state and stay there for extended periods of time. Not only would they be personally fulfilled but their productivity would skyrocket.

To better understand the flow state here’s another screen grab from the Ted talk:

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As you can see from this list of seven attributes, the flow state is not something that can be maintained for extended periods of time, but it is a self-reinforcing state, as it is intrinsically motivating – whatever produces flow becomes its own reward.

So how can you help your staff enter the flow state and benefit their own well being as well as your venture?

  1. Minimize distractions –  choose your office space with care. Quiet is important, as noise can be very distracting.
  2. Minimize interruptions – Providing your staff with long, uninterrupted time to not only work, but to think and reflect, will give them a better chance of entering flow. This means cutting down meetings and what meetings you have should be regularly scheduled and begin first thing in the morning to enable everyone to plan for them and get them out of the way before diving into their own tasks.
  3. Consider real offices with doors – Yes I know, this is very old school and today everyone sits in one big room all wearing headphones and listening to the music of their choice. And studies have shown that actually some types of music can increase productivity. But listening to music on your ear pods will ensure you never get into the flow state. If this is too radical an idea consider a quiet room, where it goes without saying that no talking or other interruptions are allowed.
  4. Enable staff to work off site – Again, this is counter the prevailing trend of reining in telecommuting. And I’m highly in favor of face to face interactions. But allocating even just a day per week to work at home or elsewhere may enable your engineers, designers, marketeers, and other creative staff to get away from the myriad distractions of the office.
  5. Provide work that is challenging – but also a good match for your staff’s skills. As you can see from the diagram, work that is overly challenging can create anxiety, whereas work that is not challenging induces boredom.
  6. Introduce them to the concept of flow – You can start with the 18 minute Ted Talk but I highly recommend you make available copies of Flow: The Psychology of Optimal Experience by Mihaly Csikszentmihalyi to anyone interested in learning more.

Flow is an exceptional state of mind. It’s not something you can expect anyone to attain constantly or even regularly. But as a founder you can expose your staff to the concept and create an environment conducive to entering the flow state. This screen grab of a quote from the founder of Sony says it all:

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Why do startups fail?

 

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The Pebble SmartWatch GETTY IMAGES

Decades ago the saying used to be, Hardware companies die hard, software companies die soft. The concept behind this was you could keep releasing new versions of software so long as you still had an engineer left in the company and perhaps that would keep your installed base happy or even turn things around. But hardware is hard to update and takes much more than a single engineer, there’s an entire supply chain involved.

Well this saying is just as true today was it was decades ago. And Wired ‘s story by Erin Griffin about the dangers of betting on crowd funded hardware startups just reinforces it.

Venture funding for hardware startups hit an eight-year high in 2016, with investors pouring $4.4 billion into 624 startups, according to data provider CB Insights.

But what has changed is the emergence of crowd funding which simply did not exist last century. Wired focuses on the Pebble watch, which raised a record $10 million in crowd funding. All those VCs who passed on investing in Pebble then jumped into the firm. It eventually raised a total of $59 million. The VC lemming phenomenon at work!

new study from CB Insights analyzes the failures of 382 hardware startups, finding that the biggest reason they fail is a lack of demand for their products. In fact that’s the same finding the National Science Foundation came to when it studied why all the post-docs it funded failed to commercialize their inventions: they built something no one wanted.

Amid the failures, it’s increasingly clear that crowdfunding success does not automatically equate to widespread consumer demand. A new study from CB Insights analyzes the failures of 382 hardware startups, finding that the biggest reason they fail is a lack of demand for their products. In other words, a popular crowdfunding project can be deceptive. According to the report:

Startups are likely raising money to get to a limited release stage, and then finding that there is not a large enough market for their product to justify a larger raise and production at scale.

Little wonder then that Paul Graham, founder of Y-Combinator, first rule for startups: build something people want! But how do you do that? It seems that testing the market waters with crowd funding would be a great way to validate your business concept. After all aren’t paying customers the true test of a product? The problem comes back to the essential character of a startup and what distinguishes a startup from a small business: growth: growth. Anyone who has read or even heard of Greg Moore’s classic Crossing the Chasm knows that the challenge for startups is NOT getting early adopters to buy the product, it’s crossing the chasm between the early adopters and the early majority.

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So whether your startup is hardware or software or even a service, I can’t recommend Crossing the Chasm highly enough. Yes, you need to win over the early adopters. But that is a battle, not the war. As you can see, the bulge in the curve is the early and late majority. That 68% is where the war is won.

So while crowd funding can be a good way to get financing if angels and VCs pass, be wary of why they passed. It is very hard to get an answer from investors when you ask that question. But try hard, even if you need to go through a backdoor to get it. Because VCs and even angels invest in one thing: growth.  Gaining acceptance amongst the early adopters is necessary, but hardly sufficient.

So make sure your product roadmap, whether or not it’s hardware or software, takes into account the majority users, who will be more demanding, less forgiving, and less adventurous than the early adopters.

And if you are building hardware, give serious thought to modularity and other approaches that will enable you to upgrade your product without starting from square zero again, with its attendant costs in time and money.