“Can” Can Kill You
Photo by Kevin Ku on Unsplash
As a student, during the summer I interned at a defense contractor. One afternoon our lab was demonstrating their latest laser rangefinder to military personnel. Today this technology is commonplace, most golfers carry one in their golf bag, but 30 years ago this was a pretty cool gadget, as well as being the size of a small carry-on bag. After the demonstration we were able to try the rangefinder out for ourselves, picking out trees on the horizon, imagining that we were in some active conflict zone. I remember at the time, one of the engineers claimed that if they pointed the laser that we were using at the moon, the resulting spot of light would only be 20ft in diameter. Unlike normal light, which will diffuse, a laser will not. Hence the expression “laser focused”.
One of my pet frustrations with many of the early-stage companies is that they are not focused. They are either trying to do too much, or are overwhelmed by possibilities. Their founders get extremely excited by opportunities, and I hear statement after statement telling me that their company “can” do this and “can” do that. It is true that all investors look for passion in a founder, however I believe that the passion needs to be grounded in reality. I am personally much more interested in hearing what a company “will” do with my money, not what they “can” do in some optimistic future scenario. Consequently, I hear myself telling entrepreneurs “Can, can kill you, focus on what you will do”.
To appreciate this objection, you probably need to understand what I look for in an investment.
Firstly, do I like the team?
Experience has taught me that the old adage of “bet on the jockey not the horse” generally holds true. And as an aside, yes, it is the “team”, not just the founder. If a company is to achieve anything of note, it simply will not be able to achieve its goals based upon the founder alone.
Secondly, do I like the product or service?
Are your plans new and innovative? If you are simply repackaging an existing idea, or there is very little IP in what you are doing, I believe that your chances of success are low.
Thirdly, do I believe that there can be a large market for this product or service?
You may define the target market as narrowly as you like, but some analysis of the total addressable market is needed in order to justify that the “size of the prize” will be worth the funding that you are seeking.
Finally — do I believe that this team can win a meaningful slice of this market?
For me #4 is generally the hardest to evaluate but is essential for a positive investment decision. Like the Chinese proverb:
“A journey of a thousand miles begins with a single step.”
The first-year’s plan and how the company executes in the subsequent 12-months is the first step to greater things. Hence my emphasis is on “will” as opposed to “can”, since during that period, there should be little/no scope for experimentation or pivot. Unless you are outrageously fortunate, it will take all of your focus, as well as the careful use of the precious funds that you have just raised, in order to reach the next funding milestone.
I know this from bitter personal experience. Ten years ago, I was part of a start-up creating the next generation of business software. We had a large, experienced team, we were well-funded and absolutely in the right place at the right time to ride the rise of SaaS. What could possibly go wrong?
Well… our number one problem was that we became obsessed by the possibilities of what we could achieve in the long term, as opposed to focusing on our execution in the short term. We were far too ambitious, we tried to do way too much and consequently ended up not doing anything particularly well. This was brought home to me when we were seeking our first institutional round of funding and one VC told us:
“So, you are telling me that you do not want to be best at anything? You would rather be second best at everything?”
“Oh yes!” we enthusiastically answered. “Oh No!” thought the VCs as he politely passed on the investment opportunity.
He had immediately recognized that we were not focused, and over-awed by the possibilities of a growing market and the technology that we were building. He knew that it is essential to focus upon being the best in your chosen market and we would fail if we did not — regrettably he was correct. It was a tough learning experience, but I do not know of any company that has been successful consciously not wanting to be the best in their field. This is not a new concept, Jack Welch’s business strategy for General Electric was that if GE wasn’t the leader in any particular market, his subordinates had orders to: “fix it, sell it or close it down”.
My urging of founders to focus on “will” should not detract from the necessity for vision and ambition to be emphasized in any investor presentation, but this must be backed by a credible execution strategy. Unfortunately, sometimes this balance can get out of alignment, and this is a red flag for any investor. For example, I was speaking to an experienced entrepreneur last week looking to raise his “A” round. He has a great company and I believe that he has a wonderful opportunity to become the go-to platform for his industry. However, as we were going through his deck, he spent a good deal of time explaining how the company was going to expand internationally. I quizzed him on this — why bring in the uncertainty and risk of an international expansion when you have your hands full with the domestic market? “Because that’s what I thought investors wanted to hear” — he responded.
Now I can only really speak for myself, but in this case, I felt that he hadn’t passed the “laugh-test”¹. I would find it far more compelling that he explains how he is going to become an indispensable tool for a significant fraction of a very clearly defined domestic market, as opposed to introducing all of the uncertainties and risks of going into geographies where his team has no direct experience. In other words, tell me what the company “will” do as opposed to what the company “can” do.
Building a successful company that can go on to deliver a meaningful exit for its founders and shareholders is not a trivial achievement. The vast majority of companies fail, even well-funded, innovative, start-ups with passionate, capable founders. So, stop and ask yourself why that is.
Clearly there can be many reasons why a company goes wrong, but in my experience the second most common cause (I will write about the most common in a future post) is a lack of alignment to a clear, attainable goal, leading to poor execution. So, the next time someone tells you to “focus like a laser” — just think of that 20ft circle of red light on the moon, and double-down on what will make a difference in your organization. Don’t think of what you “can” do, but focus on what you “will” do.
Simon Hopkins, New York Angels Board Member
[1] I was introduced to “laugh-test” by a former colleague. If you can present your plans to a room of investors and nobody has the compulsion to laugh, smirk or think “c’mon man”, then you pass the “laugh-test”.
