When I launched my first company in 2008, it didn't "look" like all the other Silicon Valley startups I idolized at the time. I didn't have investors pumping in millions of dollars. I didn't have the loft-style office in the heart of SOMA (though that came later). I wasn't even working on the company full-time. I was bootstrapping it on the side while working for Oversee.net.
At the time, I felt like a failure - an anomaly - compared to all the stories of tech startups coming up alongside me in San Francisco. But what I've come to recognize since then is that everything I saw as a flaw - limited capital, few resources, etc - all turned out to be blessings in disguise.
Because I was in full control, I was able to pick and choose the right clients to work with. And because I didn't have investors hanging over my shoulder - dictating my every move - I was able to focus more on getting great results for my customers than on meeting some arbitrary income projection.
Serial entrepreneur and venture capitalist Jonathan Siegel gets it. As the author of the new book The San Francisco Fallacy: The Ten Fallacies That Make Founders Fail, Jonathan was generous enough to jump on a call with me to discuss the different ways these misconceptions about entrepreneurship manifest - and the shockingly negative consequences they can have.
Why We're Wrong About Failure
Jonathan's inspiration for the book came from the most common misconceptions he's seen founders fall victim to when creating their businesses - misconceptions he admits to having held "until they were brutally beaten out of me by my failures."
He goes on to call out our culture of success for leaving entrepreneurs baffled by their failures - even though, statistically, something like 80% of businesses fail.
"You're more likely to fail than you are to succeed," he states. "When your business does fail, every founder seems to be surprised. We have this idea of what starting a company might be - it's all success, getting on Techcrunch, and selling your company. But the reality is often that you slog and slog and slog, and raise money, and never pay it back, and feel terrible about yourself. Those two things are out of alignment."
That's a problem, he argues, for people who are used to doing things right or being rewarded for their efforts. "When things don't work - and the majority of time they won't - you often feel like, it's not just that the company has failed, but you feel like a failure internally as well. When a business fails, it's hard to differentiate your personality and your rightness from the actual business performance. It's devastating as that business crumbles around you. But you're not alone. You didn't do anything wrong. This is the normal outcome."
Why Businesses Fail
Despite these dismal odds, Jonathan understands the optimism of business owners - likening it to the excitement of a new relationship where it seems like nothing could go wrong with your new boyfriend or girlfriend.
But just as relationships fall apart for any number of reasons, businesses break down in many different ways. Jonathan shared five off the top of his head:
"There are so many ways to mess up a company. There are existential things: a big competitor destroying your market in one fell swoop. There's internal conflict: is this something I want to be doing with my life? There's interpersonal conflict: can I manage my team? Do my co-founders share my vision? There are tactical issues: did I bring on my sales strategy at the right time, with the right people? There's money: do I have enough money? Can I get it if I need it?"
In fact, the sheer number of ways to fail has led Jonathan to look at those who are successful in a new light: "Because there are so many ways to fail at business, I look at those people who have a success as either lucky or adept at navigating the challenges that come with entrepreneurship."
Prioritizing Profit Over Passion
If failure is so common, the next question naturally becomes, what can be done to minimize its risk of occurring? For Jonathan, it comes down to shifting from passion-driven business planning to a profit-driven approach.
"In the tech space, we have this idea that you need to have passion," he argues. "But I believe that passion is blinding. Passion actually takes your vision away from reality."
In our conversation, Jonathan shares an idea for biodegradable legos. He's passionate about the idea not just from an environmental perspective, but through the lens of a parent who's stepped on multiple hard plastic bricks and wishes they'd break down just a bit faster.
"Because I'm passionate about the idea, I want to go to China, hire a chemist, show that they're good, fill up a warehouse and start selling them," he says. "But the business person in me says, 'No, no, no, I'm not going to do all of that. I'm going to find out what it costs to get a single customer, without selling a single lego. I can find out if it's commercially viable, very early on, without going through all those steps of building the product."
As a marketer, I love Jonathan's enthusiasm for testing and iterating before going all-in on an idea. I asked him to expand more on how entrepreneurs can use this process to minimize their losses. According to Jonathan:
"Most entrepreneurs, their world looks like, 'I have the best idea, and I'm working 14-hour days to make this thing come to life.' What I think is this: 'I had a good brainstorm, I came up with 10 different ideas, I made 10 landing pages and put up 10 ads, and now I'm looking at this little Excel sheet every week to see the number of people who visited each landing page, what I paid to get them there, and the difference between the cost to acquire that customer and the value I would expect from that customer, based on the pricing guidance I gave them.'"
With all that data in place, all Jonathan has to do is make a decision about which idea is likely to be the most cash-efficient or have the best ratio of lifetime value to cost of acquisition. It's profit-driven planning, not passion-driven - and it's one of the keys to success as an entrepreneur.
For more of Jonathan's perspective on these and other San Francisco fallacies, check out his book (he promises it's short and easy to read) or follow him on LinkedIn. Or, if you have any questions about our chat, leave me a note below: