March 22, 2017
Commitment, values and the importance of storytelling: 3 things I wish I’d known as a first-time entrepreneur
In March of 2014, I left my stable-income job as a management consultant in Washington, DC to start a company focused on removing financial barriers to higher education in the US. A few weeks later, MPOWER Financing was incorporated. I was full of energy, full of courage, full of knowledge about global financial inclusion, but admittedly, I was also full of crap — what did I really know about launching a venture and growing it to scale? Looking back on the last three years, I’m excited by all the progress my co-founder Mike and I have made, supported by a stellar group of advisors, investors, and other entrepreneurs that I met through Village Capital’s peer-driven investment program. Still, there are several insights I wish I’d had prior to starting the business — advice that would have helped me plan better professionally and emotionally. As a McKinsey alumnus, I’ve sworn to think in threes for the rest of my life, so for the purpose of this blog, I’ll stick to three key things I wish I’d known :) 1. When you launch a startup, you’re potentially making a commitment for a decade Though some companies exit sooner, and several companies fail a whole lot faster, successful companies take a median of nearly five years from first VC money to acquisition, and over eight years from first VC money to IPO. Given it can take one to two years from the very start to first VC money, this means that the range is close to six to ten years end-to-end. If you’re starting a company, make sure you prepare financially (not much money is likely to flow into your 401K during this time), professionally (you’re going to need a strong network throughout the journey), and personally — dating, getting married, having kids or taking care of elderly parents become that much more complicated when you’re constantly busy with a startup (obviously still doable, but certainly more complicated). 2. The most common reason for startup failure isn’t money… it’s co-founder and team dynamics Several post-mortem studies have been conducted to understand why startups fail. Though external factors like “the market” or “cash” often make their way to the top of the list, the most common reasons for failure are often internal. In fact, Noam Wasserman, a former HBS professor now teaching at USC, studied 10,000 founders and found that around 65 percent of the failures of high-potential start-ups are due to “people problems,” which range from issues of power and control within the leadership team to tension around equity splits and compensation. Mike and I had known each other for five years when we co-founded MPOWER. Though we had never worked together, we’d been very successful as a team during our time in business school at INSEAD — there was the right amount of conflict, respect and complementarity skills between the two of us. Three years in, I feel lucky that we teamed up and have yet to kill each other. That said, I grossly underestimated how deeply individual values matter on a founding team and how intimate a co-founder relationship is compared to more traditional relationships with colleagues in the corporate world. I joke with my wife that I learned quite a bit about marriage by working with Mike. He and I crashed on each other’s couches for the past few years, we argued at 10pm on Saturdays about company matters and we shared the same financial and emotional stress combined with sleep deprivation. Our occasional disputes are ultimately about deep-seated values, often relating to how we ought to treat people, e.g., an employee who is having challenges, leaving the company or getting fired. The lesson here is to select a co-founder and an exec team with whom you have not only complementarity of skills and alignment on vision, but also solid agreement on core values. How will you treat the first person you hire or fire? What is a ‘fair’ salary to give to yourself or other employees? How do you and your co-founder organize your company time in relation to other aspects of your life like family, religion or health? In the two Village Capital cohorts that MPOWER participated in (U.S. FinTech 2014, U.S. EdTech 2015), I’ve seen companies dissolve quickly because of founding team ‘implosions,’ and, vice-versa, I’ve observed that the companies that did well had solid co-founder relationships. WiseBanyan, the winner of our FinTech US 2014 cohort, is led by two great co-founders, Herbert Moore and Vicki Zhou, who couldn’t be more different from the outside but share the same internal core belief of providing free financial advice to millennials. Similarly, Peardeck, which won Village Capital’s EdTech US 2015 cohort alongside MPOWER, is led by a team that had already worked successfully together and had a prior exit. 3. As a startup CEO, storytelling is a core responsibility My very first pitch deck was horrendous: slides packed with data and text in 12-point font, just like I had learned in consulting. In one of my first experiences with formal startup coaching, Village Capital mentors eventually got it through my thick skull that maybe there was a slight difference between convincing senior executives at a large industrial company of doing a pilot pricing program on one of their product lines and convincing angel investors to put their own money into my startup for the next five-to-eight years to either get a 10X return or potentially never see the money again. In the first situation, I had been hired by the company itself to increase profitability; I had tens of thousands of datapoints from the company’s own servers supporting my claim, I’d built intimacy and credibility working side-by-side with the company execs for several weeks and I had the McKinsey brand behind me. The slides were more of a report summarizing the work already done, the conclusion of the analysis and the next steps. In the second instance, I had limited data, no strong brand behind me and I would be meeting a lot of these angel investors for the first time. In the early-stage startup world, data is useful but only as an add-on to a strong narrative. The CEO is selling a vision and an opportunity for investors, employees, advisors and other stakeholders to become part of that vision. Regardless of how analytically sophisticated the investor is, there needs to be an emotional buy-in first; she/he needs to relate to the mission of the company and build trust in the CEO before becoming interested in the business and validating the basic facts and data. Robin Bruce sums it up in her Forbes article on The Importance of Entrepreneurial Storytelling: “Every successful entrepreneur must be a storyteller.” This is true for all companies and especially true for mission-oriented ones, where the company narrative is used not only externally with potential investors and employees, but also internally to stay aligned with the mission of the company and reinforce its values. I still have a very long way to go with MPOWER, raising a Series B this year, launching new products, growing the team to 50 then 100 and 200 employees and eventually going through an acquisition by a financial services or tech company. Moreover, as a first-time entrepreneur, I’m poorly-suited to give entrepreneurship advice to anyone, but I’m hoping my personal experience in this blog can help other entrepreneurs better plan for their journey, build a team with aligned-values and adopt a solid company narrative early and fully. Manu Smadja is CEO and Co-founder at MPOWER Financing, alongside his co-founder Mike Davis. Learn more about MPOWER here.