1/32: Building a #StartUp business has similarities to a spacecraft crashing down on an unknown planet. I talk to Founders about this all the time. Unpacked:
2/32: We’ve all seen blockbuster “how the heck are we going to survive” SciFi movies. The one commonality is that there’s an obvious prioritization of what has to be solved and in what order.
3/32: This is because all human beings need 3 things to survive: Oxygen, Water and Food. Without any of them we can’t survive. But, bad things start to happen if we don’t have oxygen for 3 minutes, water for 3 days or food for 3 weeks.
4/32: It’s a truism that our bodies are constantly dying but we reset the clock another 3 minutes every time we take a breath of air, 3 days every time we take a sip of water and 3 weeks every time we eat a nourishing meal.
5/32: This is why in a disaster movie, an oxygen leak creates more urgency than finding out that the ship’s food bank has been contaminated.
6/32: Businesses are no different. At all times they’re either in oxygen, water or food mode. An important skill to develop as a CEO or Board member is how to recognize which mode the business is in and guide it accordingly.
7/32: Oxygen mode is the easiest to understand because a business ceases to exist if it can’t pay its bills. Death by running out of money. When in oxygen mode, resources and mindshare need to focus on only one thing: How to raise more capital.
8/32: Businesses really start to feel the pressure of being in oxygen mode when they only have 2-3 quarters of runway left because raising capital takes time and isn’t guaranteed to succeed.
9/32: A CEO should map out a plan for raising capital from different constituencies and be razor focused on delivering “now” business results that maximize his/her chances of attracting capital to extend the business’s runway.
10/32: This requires focusing on a very narrow set of results that will be used in fundraising to describe the trajectory of a business. There’s no choice but to create a fundraising narrative that’s framed using current results whether they’re good or bad.
11/32: And, the fundraising narrative has to present a story of a bright future with accelerating results. “How much can be learned for how much money and how quickly” is important to a new investor. They’ll want to know their money will be used to prove out the business.
12/32: In water mode, the last thing anyone will want to see are resources being allocated towards tasks that won’t produce near immediate results or learnings that won’t impact the now. Advice will be simple, action oriented and very measurable.
13/32: Food mode is also relatively easy to spot. A business is in food mode when it’s found it’s raison d’etre, is scaling nicely, and isn’t at risk of running out of capital anytime soon.
14/32: The challenges in food mode vary, but advice and resource allocation tend to focus on transforming a “good” business into a “great” business. Building a large, durable and profitable business that can stand the test of time isn’t easy.
15/32: Discipline matters a lot because without the right governance resource allocation can take on a life of its own. Good businesses can devolve into mediocre businesses if left to their own devices.
16/32: Crafting the right agenda that focuses the organization is critical because an organization that tries to do too much fails by being spread too thin and wastes a lot of money along the way.
17/32: A good agenda is transformational and can take the form of 3-5 “corporate imperatives” that are measurable and deliverable over a 2-3 year period. The defined destination should be visionary and inspirational.
18/32: The beauty about being in food mode is that not everything has to go right for the business to get better and better over time. If an imperative isn’t playing out according to plan there’s time to adjust or rethink.
19/32: But this mode can create tension at the Board level, especially if everyone around the table feels like their views of the future possibilities are valid and should be reflected in the long term agenda.
20/32: Diversity of experiences and ideas are great inputs to a company in food mode, but the CEO has to be the one to create the unified vision, imperatives and plan. This is non-negotiable. Full stop.
21/32: Water mode is where most bad advice is given because many CEOs and Board members don’t recognize it as a unique stage of growth. They understand how to direct a company that’s quickly running out of cash (oxygen) and they understand how to give strategic advice (food).
22/32: But water mode is where the game is usually won or lost. In water mode, a business hasn’t yet cracked the code. Some things are going right but there’s a lot left to figure out. The company has capital, but rarely enough for a major initiative to deliver negative results.
23/32: Resources need to be allocated and the team needs to execute with such precision that the business can produce the right “upwards and to the right” results that serve as evidence that the business is on track.
24/32: All results need to be seen as either “proof” or “anti-proof”. Examples of anti-proof: Lower than forecasted growth, higher than forecasted CAC, lower than forecasted funnel conversion, lower than forecasted engagement, etc.
25/32: When anti-proof surfaces it puts the CEO in a tough spot because the entire business is at risk. Each instance of anti-proof requires additional positive proof on other dimensions as an offset.
26/32: When anti-proof surfaces, a company in water mode is almost certainly going to slide into oxygen mode. The business’s agenda will collapse to “things that can be proven quickly” to attract capital that will give the company some breathing room.
27/32: And sometimes not a lot can be proven quickly for a business in water mode. This means that burn needs to be sized to give a company the best odds of delivering proof and raising capital to avoid the slide back into oxygen mode.
28/32: This is where the best and worst advice can surface. Biting off the right, high-odds of success learning agenda paired with the right burn rate is critical.
29/32: Too many Founders raise capital and immediately grow OpEx and SG&A quickly in order to bite off a bold learning agenda. Businesses learn in step functions and costs should follow the same pattern.
30/32: Getting the balance wrong sets the company up for a rocky journey. Bad balance = More time spent in oxygen mode. Good balance = More time spent in water mode.
31/32: The best advice I can give is that a CEO and a business’s Board should always know which mode the business is in and plan accordingly. Advice requires context so declaring “mode” helps everyone get on the same page.
32/32: And in the immortal words of Mark Watney in the Martian: “I’m gonna have to science the shit out of this!”

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More from @fintechjunkie

3 Nov
1/29: Have you ever had a concept explained to you that helps frame complex issues you’ve been wrestling with and opens your eyes to new possibilities? A concept that I share that seems to resonate well with Entrepreneurs and Investors is what I call “Truth Files”. Unpacked:
2/29: So what is a “Truth File?” Simple definition: “A truth file contains data that without need of additional confirmation can be considered factual.” Not all truth files are 100% accurate and not all are valuable, but the best ones can be transformational.
3/29: The operative question that defines how valuable a truth file is: “What does the truth file reveal that can be used as a substitute for investigative work or help make more accurate decisions?” The first reduces friction and the second improves outcomes.
Read 29 tweets
26 Oct
1/15: Of all the questions I’m being asked on recent diligence calls about our companies, the most common is “What are the skills/gaps of the Founder(s)?” Given COVID, this has become an important topic so I thought it would be worth sharing how I think about the issue. Unpacked:
2/15: In every conversation I try to level-set the outsider and speak in “truisms” before diving into specifics. The first truism is that the skill set needed to run a high growth, disruptive start-up is multi-dimensional and that it’s about tradeoffs vs. insisting on completism.
3/15: We’d love if our Founders were world class on dimensions that include: Action orientation, ability to make decisions with limited/changing data, magnet for talent, ability to frame a business vision, and fundraising skills. These are just a few of the many important skills.
Read 15 tweets
16 Oct
1/42: What the heck is going on with the #fintech ecosystem’s obsession with Neo-Banks? Do they actually make sense in the US? Traditional Bankers say “absolutely not”. I say “they can”. Unpacked:
2/42: Because there’s so much confusion about the topic, it’s worth starting with a definitional statement about what a Neo-Bank is. One definition: A Neo-Bank is a COMPANY that offers a LIMITED SUITE OF BANKING PRODUCTS with NO OWNERSHIP OF BRANCH LOCATIONS.
3/42: COMPANY does not mean Bank. There are many forms and fashions of Neo-Banks but not many of them are actually Banks. It’s possible with today’s technological solutions for a non-Bank to offer Banking products.
Read 42 tweets
11 Oct
1/28: The most commonly debated and IMHO the least grounded topic in early stage VC is “how do you determine what a company is worth?” Recent early stage #fintech and #venturecapital valuations seem to defy gravity but are they justified?
2/28: Answering this question requires breaking down the problem into a framework that’s easier to analyze. One framework: A business is “worth” a combination of the intrinsic value of what it can produce and the option value of what it might be able to produce in the future.
3/28: When a company has cracked the code on turning a dollar of investment into a multiple of the dollar in the future it can be categorized as a money making machine.
Read 28 tweets
3 Oct
1/25: I’ve been told that some of the simple concepts I routinely share with Founders get adopted by their firms as “truths” (which is flattering). I was asked to outline a few of them in Tweet form. Unpacked:
2/25: One of my favorites is a concept called “0.8 to the 5th”. It’s an acknowledgment that contingent probabilities suck. If a business plan has many “ands” joining process steps to create outcomes then its stuck in the world of contingent probabilities.
3/25: Most businesses are complex with strings of three, four, and sometimes five or more dependencies linked together. The best Operator in the world only has in the ballpark of an 80% chance of hitting an aggressive goal if it’s one of many complex priorities on his/her plate.
Read 26 tweets
28 Sep
1/31: The biggest question coming out of my recent tweet thread about the evaluation of startups is: “How important is the startup’s distribution strategy in your diligence work?” The answer is: “Damn important because the business needs customers to exist!” Unpacked:
2/31: This may sound backwards to some investors but my diligence process around a company’s marketing strategy starts with the unit economics of their product/offering. The greater the contribution margin (in absolute dollars) the more options a company has to scale.
3/31: If a product can only throw off a few dollars of contribution margin a year then the channels the company should be testing will be very different than if the product can throw off a few hundred or a few thousand dollars of contribution margin.
Read 31 tweets

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