How founders know when to give up and when to persist

Legends will teach you success is a matter of persistence. This post will tell you it’s not that simple. It will tell you that adversity isn’t created equal. It will teach you the different kinds of adversity and how to react to them. In the process you will witness the rise of a war lord and learn how Steve Jobs made predictions. In end, you will know when to give up and when to persist. Knowing is power. Use it.

It was a landscape of rocks, wind and dust. In the middle of this harsh environment, a young woman gave birth to a boy. She named him Temüjin. And he would change the course of mankind.

Temüjin grew up in adversity. His father was killed. The tribe abandoned his mother and the boy to die. Temüjin was captured by an enemy tribe and imprisoned. He was starved and tortured. All of it before he reached the age of 15.

But Temüjin refused to die. He persisted because he had a dream. He wanted to rule the world.

When Temüjin turned 25, he gathered an army to consolidate the tribes. He attacked his enemy. Arrows flew and swords were swung. The battle was brutal.

But Temüjin had survived an unthinkable childhood to come this far. His resolve was immense. But in the midst of the battle, he did something puzzling.

Temüjin stopped fighting. He ordered retreat, and fled.

The hardest decision for entrepreneurs

Today, we know how the story of Temüjin ends. His dream came true. He ruled the world by the name of Genghis Kahn.

We also know that his retreat was a smart move. He was losing the battle and wanted to maintain strength to fight again. It was a necessary “pivot”.

But how do entrepreneurs know when to pivot and when to persist? It’s one of the most important questions that exist.

When to pivot and when to persist

Most stories about success revolve around the theme of persistence. The stories go something like this: Some entrepreneur has a contrarian idea. Everybody tell him it’s crazy and cannot be done. But he persists. In the end, he succeeds.

The moral is this: don’t let anyone tell you that you are wrong. That only those who persist will succeed. The storyline is good entertainment. But it can terrible advice for dealing with reality. If Temüjin had persisted, he would have failed.

In the past years, the Lean Startup movement has enjoyed popularity. The methodology is all about testing and pivoting. To immediately change direction if something doesn’t work. That’s the opposite of persistence. And it confuses most people.

The confusing part is this: If I don’t get immediate success, should I give up and pivot? Or should I keep pushing and persist?

The answer is knowledge. The problem is belief.

What to do, depends on this: whether you KNOW you are right OR whether you BELIEVE you are right.

If you KNOW you are right, you should persist. If you BELIEVE you are right, you should be ready to pivot. Unfortunately, knowing and believing feels exactly the same. Then, how can you tell the difference?

The difference between knowing and believing

To KNOW you are right requires a model. To BELIEVE only requires hope and wishful thinking.

Steve Jobs insisted on a graphical user interface for the Mac because he had a model. The model was familiarity. He knew it’s intuitive for people to deal with familiar things. Typing commands into a black screen was alien. But to move a piece of paper into a folder felt familiar.

A valid model is a proven theory that allows you to make accurate assumptions. Hope and wishful thinking is what illusions are made of. Like Santa Claus.

If entrepreneurs have valid models, they must stay the course and persist. Even when people tell them they are crazy.

If the entrepreneur doesn’t have a valid model, entrepreneurs must be very attentive to push back. They must be ready to pivot.

How to demonstrate you know the difference

If you want to raise funding, you need to convince investors. During these conversations the investor will challenge your assumptions. And there are two ways to respond. One way is disastrous. The other way will create trust.

Entrepreneurs who respond with strong beliefs tends to come off as delusionary. No investors like delusionary founders.

Entrepreneurs who respond with a valid model tends to come off as intelligent. And in most cases the entrepreneur will have a superior model, because he has thought about longer than the investor. And good investors love to be proved wrong by intelligent founders.

Conclusions made:

  • Many entrepreneurs don’t know when to give up or when to persist.
  • If the assumptions are based on beliefs, the entrepreneurs must be ready to pivot.
  • If the assumptions are based on valid models, the entrepreneurs must persist.
  • When talking to investor, demonstrate you understand the above.

Check out Accelerace. We invest in tech startups.

Sponsored Post Learn from the experts: Create a successful blog with our brand new courseThe Blog

Are you new to blogging, and do you want step-by-step guidance on how to publish and grow your blog? Learn more about our new Blogging for Beginners course and get 50% off through December 10th. is excited to announce our newest offering: a course just for beginning bloggers where you’ll learn everything you need to know about blogging from the most trusted experts in the industry. We have helped millions of blogs get up and running, we know what works, and we want you to to know everything we know. This course provides all the fundamental skills and inspiration you need to get your blog started, an interactive community forum, and content updated annually.

Why every founder considers to screw their investor

Most people think founders and investors are true partners. This post will tell you it’s rarely so. It will tell you they take advantage of the situation whenever possible. In the process you will hear a famous love story, learn why restaurants hate JustEat and how Japan became an economic superpower. In the end you will understand one of the hardest dilemmas for founders and investors. Understanding is power. Use it.

He held the world’s most powerful object in his hands. Soon everyone would bow to his will. Including a very special person.

He lifted his arms high and placed the crown on his own head. A new emperor was born. The year was 1804. The man was Napoleon Bonaparte.

Nine years earlier, Napoleon had met Josephine. Josephine was sophisticated and beautiful. She knew it. Men wanted her more than she wanted them.

Napoleon was one of many men adoring Josephine. But Napoleon wasn’t special. Or rather, he had not yet become special. From the viewpoint of Josephine, he was just another man with potential.

But Napoleon was determined to prove exactly how special he was. So he embarked on a long and expensive journey of romantic pursuit. And Josephine took advantage. She enjoyed an asymmetric relationship of power. But she later learned it wouldn’t last.

As time went by Josephine felt a change. But what really scared her was this: she knew Napoleon felt it too.

What changed was the power profile of their relationship. In the beginning she held all the power. She had status and beauty. Napoleon had nothing. Just ambition. She didn’t value it much.

But as time went by, her beauty faded. At the same time, Napoleon was transforming ambition into tangible power. He was quickly becoming the most powerful man in France.

During the early pursuit of Josephine, Napoleon was extremely attentive to her needs. He wrote love letters, bought expensive gifts and kept away from other women. Josephine didn’t return the favor. She kept all her admirers and happily received without giving much in return.

But after the power had shifted, Napoleon started taking advantage. He took mistresses and ignored her. Josephine was powerless.

The shifting nature of power asymmetry

The problem of asymmetric power exists everywhere. Two parties benefit from a relationship. But one party benefits most in the beginning. The other party benefits most later.

Like and JustEat. In the beginning they needed hotels and restaurants more than the hotels and restaurants needed them. So hotels and restaurants commanded opportunistic terms. At some point the table turned. It was payback time.

Or like countries locked into producer – consumer relationships. US consumers wanted cheap goods. Japan was willing to produce them at low costs. US benefitted in the beginning. Japan grew strong and started outcompeting US companies with Toyota, Mitsubishi and Sony.

Power asymmetry between investors and startups

In the beginning, investors have all the power. Very few people are willing to invest in early startups. But hordes of hopeful founders are starting them. In the beginning, the founders need the investors more than the investors need the startups. So many investors take advantage.

What happens is this: A startup gets angel funding. Or an institutional seed round. The process is hard. The founders get rejected by almost everyone. In the end someone offers the founders a term sheet. The terms reflect the asymmetry of power. It can be liquidation preferences, options, discounts on valuations, veto rights, board control, getting the startup to pay for due diligence fees etc. The startup often have no choice but to accept the terms. However, many founders never forget the unfairness.

But then sometimes this happens: The startup finds product market fit. A big VC firm approaches the founders. The founders want the new and big investor onboard. But they also want to minimize dilution and loss of control. The founders and new investor meet. And during these meetings the new investor will put the founders in a dilemma.

The new investor will look at the cap table. Then they’ll ask a sneaky question: What is your relationship to your existing investors? It’s like a new girlfriend asking, so what is your relationship to your ex? It’s a toxic question.

The founders really want the big investor onboard. And they haven’t forgotten the unfair terms by their first investor. The founders don’t feel they owe the investor anything. In fact, they feel the investor got more than deserved. It’s a dangerous cocktail.

The cocktail creates an impulse. The impulse is to help the new investors get favorable terms in order to secure the deal. Even if this means to disregard the interests of their existing investors.

I have seen it. Many times. I have even participated myself. It’s a systemic part of startups funding. And everyone will experience it at some point. To each actor I will provide the following thoughts:

Founders: The situation reflects fundamental moral. Do you really want to be a person who forgets and even punishes the ones who trusted and believed in you when no one else did? Or will you be someone who put your business partners first and display the grace of caring for their interests as well? Also, do you really want to burn bridges? Earning back the trust of someone who you screwed over is hard.

Early stage investors: The big number of startups seeking seed funding makes it easy to be a jerk. But to provide startups with funding is to provide a service. Good service will make happy customers. Happy customers are good business. Especially if one of these startups grows and meet late stage investors. Wouldn’t it be nice to know that the founders felt a true responsibility to care for your interests because you had treated them fair?

Later stage investors: Early stage investors are an important source of deal flow. They take risks before anyone else. They might not command the same power as you. But to squeeze them hard will hurt yourself in the end. Also, remember that there might be even later stage investors after you. Do you really want show the founders that it’s okay to squeeze the existing investors?

Conclusion made:

  • The power relationship between startups and investors is asymmetric over time.
  • The asymmetry creates incentive for opportunistic behavior at different stages in the relationship.
  • Founders, early stage investors and late stage investors should be very careful about optimizing for the short term.

Check out Accelerace. We invest in tech startups

The anatomy of the perfect entrepreneur

Most people think the world of startups is high tech. This post will tell you it’s primitive. It will tell you startups is where sports were a hundred years ago. It will tell you how founders and investors can improve performance. In the process you will meet a perfect athlete, meet pre-modern entrepreneurs and learn when the word startup was born. In the end, you will be better at startups. Knowledge is power. Use it.  

It was the biggest event on the planet. And all eyes were fixed one person. Elmer Niklander from Finland.

Niklander was the Vitruvian Man. His body was 185 cm tall and weighing 79 kilos. It was elegant and perfectly balanced. Like a renaissance sculpture. Every coach had told him he would become a superstar. And now he was.

He bent down and grabbed the 7.260 kilograms. He took a last deep breath. Then he exploded and hurled the ball 14.15 meters. The year was 1920. And the place was the Olympic shot put final in Antwerp.

70 years later, Randy Barnes from USA throws the same ball 23.12 meters. A devastating advance of more than 60%.

The false idea of the universal athlete

Elmer Niklander grew up in the early days of competitive sport. When he was 6 years old, the first modern Olympics took place in Athens. And If you had been at the opening ceremony, you would have witnessed something strange.

You would have seen 2,626 athletes from 29 countries come marching in. The strange part: Everyone almost looked the same.

But back then it wasn’t strange. Because until recently, it was believed that sport was a thing. That being good at sport was a function of universal physical coordination. And that coordination was best achieved by a harmonious body with perfect measurements relative to each part. Like the Vitruvian Man. Today we can appreciate the logic. Obviously, it was mistaken.

The recognition of specialized athletes

At some point it was realized that sport wasn’t a thing. We learned that sport was in fact many different things. The world of sports has specific disciplines. Each discipline has distinct problems.

Shot put impose the biomechanical problem of hurling a dense ball as far as possible. Swimming imposes an entirely different problem. To propel the body though water using minimum energy.

Once the distinct problems of each discipline were understood, the idea of the perfect athletic body faded.

Shot put requires a short explosive motion. That means that the muscle to fat ratio is irrelevant. Fat is mainly a problem for endurance. Good shot putters don’t need a six pack.

Swimming techniques mainly use upper body movements. That means the legs don’t matter much. Big feat and long arms do. Michelangelo would never have sculptured Michael Phelps.

When we finally realized that sports were many different things, something counter intuitive happened. Athletes started to look less perfect. Actually a lot less. But, their performance soared!

If you had met Randy Barnes, you would never had guessed he was an athlete. Much less, that he was an Olympic gold medalist.

Instead, Randy looks like a bouncer. Partly because of his monstrous frame of 132 kilos. Partly because of what appears to be a beer gut.

But, if Randy Barnes had participated in the 1920 Olympics, Elmer Niklander wouldn’t have stood a chance.

The false idea of the universal entrepreneur

The modern tech startup was invented in Silicon Valley in the late 1950’s. However, people didn’t call them startups. That didn’t happen before 1976 when Forbes Magazine first coined the term.

The founders of the modern startup adopted a name for themselves. Or someone gave it to them. A much older term. Entrepreneurs.

Before the modern tech startup, entrepreneurs were not the people we would think of today. Entrepreneurs were businessmen. And back then, most business was trade. Buying and selling goods with a profit. It required an appetite for risk, and skills in negotiation and salesmanship. People who excelled in those things were sometimes referred to as “born entrepreneurs”. It was an ideal. The business version of the Vitruvian Man.

But when the label “entrepreneur” was given to founders of startups, something changed. What changed was the nature of the underlying business. See, startups aren’t trading companies. Trading is a business model. Startups are not. It’s not even a thing. Its many different things. Does it ring a bell? Now you know where I am going.

The problem with the universal entrepreneur

The term “startup” carries no information about what it does. Nor what its business model is. A startup can do anything from deep science, to organizing sharing of goods, to inventing a new currency. It can sell to government, business and consumers. Its products can be software, hardware or living tissue. There are basically no limits. They are all called startups. And everyone starting them are all called entrepreneurs. And herein lies the problem.

The problem is the multitude of business models. Because each business model has specific problems. Getting consumers to buy virtual goods in games is a vastly different problem than navigating corporations to sell enterprise software to executives. Or getting retailers to provide optimal shelf space is a very different from getting an army of telemarketers to perform.

When modern shot putters are so much better than Elmer Niklander, it is because the specific problem of shot put has been understood. The talent scouts know what to look for. The coaches and athletes know what to train.

Our understanding of startups is where sport was in the 1920s. We know that there are disciplines, but we don’t distinguish the specific problems of each discipline well enough. We still believe in the Vitruvian Man.

That means investors favor universal characters. Like Jack Dorsey. A man who can run both Twitter and Square. And anything else he puts his mind to. But wait, that’s what people thought of Elmer Niklander. Including Niklander himself. So he also competed in discus, hammer and javelin.

The recognition of specialized entrepreneurs

Startup fail rates are horrendous. Some people think it’s supposed to be. But it doesn’t.

Most startups don’t compete with each other. It’s not a zero sum game. In fact, most startups could become successful without it being a mathematical problem. The only ones suffering would be the incumbents.

For this reason, increasing the success rate of entrepreneurs is fairly simple. It’s mainly a function of making the entrepreneurs better. How? Well, we know this by now, don’t we?

We must shed the idea of the universal entrepreneur. We must understand the different disciplines within startups. We must understand the specific problems each type of startup face. We must know what to look for and what to train. Mark Andreesen calls it: Strength over of lack of weakness. But the key question is what strength?

If I knew, the secret to unlocking a massive improvement in success among startups would be within my power. I don’t. But I have a thesis. The thesis is there are at least 144 different sets of startup disciplines.

I am analyzing each type of startups and the specific set of critical skills needed by the founders. If founders possess those skills and train them, they become Randy Barnes. If you want to follow this work, keep an eye on my blog.

Conclusion made:

  • The idea of the universal athlete dominated early days of competitive sports
  • The idea of the universal entrepreneur still dominates the world of startups
  • When sports were broken into disciplines and athletes specialized, performance soared
  • When startups will be broken into disciplines and entrepreneurs specialize, performance will also soar


Why startup founders feel lonely but aren’t alone

What I am about to tell you is a true story.

I got fired. It was the strangest thing. The company was my own.

One hour earlier I had put on my headset. Connected to the wifi in my hotel room. I had a board meeting. I reported from my business trip. I had met with a big potential client. He had even invited me to his home for dinner. I would go after the board meeting. It was a good sign. I was proud and excited. Then it happened. At the end of the agenda. Under Other.

Our chairman said: You are fired.  Budgets weren’t met. Again. He explained there would be a staff meeting later. The team would be informed. A new CEO had been found. He was there. He said Hello on the call.

The beginning of a long and lonely journey

Some years earlier I had co-founded my startup with two friends. We talked about everything.

Then one of them got another opportunity. He didn’t talk about it. He knew we wouldn’t like it. So he kept it to himself. One day I found out. I forced him to leave. We stopped talking.

But I still had my other friend. We got funding. Then roles. Then performance salary. We stopped talking about the salary part. Then about other things too. It felt awkward.

I hired people I liked. One of them was a really great guy. He could be my friend. But I was his boss. He threw parties with the other employees. I learned when they shared pictures and laughed at the office. I told them to laugh in their spare time.

My parents often called. They preferred I took a normal job. I never complained. I didn’t want them to worry. So I showed them our offices. I made sure everyone was there. Even interns. They felt better. It seemed like a real company. They stopped worrying.

I attended startup events. I met a lot of founders. We shared information. But everyone was doing great. Most conversations stopped there. I never met a founder who didn’t do great. Maybe only we struggled.

The journey ended. Alone.

One day I went on a business trip overseas. I was meeting the customer of a lifetime. The CEO of a big company. The meeting went perfect. He showed pictures of his family. He invited me to his house the same night for dinner. I accepted, knowing that I would have time for the board meeting in the meantime. I had great news.

I don’t remember the last part of the call. But I remember when Skype closed down. The hotel room was dead silent. I was desperate to talk to someone. I grabbed my phone. I stared at the screen. I had no idea who to call. Everyone seemed like the last person I wanted to tell. Then I couldn’t breathe.

My phone vibrated. It reminded me about the dinner invitation. It was in thirty minutes. I decided to go and tell the CEO.

He opened the door with a smile. His kids and wife came to greet me too. They served dinner. Since the board meeting my stomach felt like it had twisted inside. I couldn’t eat. The CEO told me that they had big plans with our software. He said he trusted in me. He toasted to a long and fruitful partnership. His wife toasted too. She said it was an honor to have me as guest. I left without telling the truth. There was no good time between the toasts.

The poker faces of founders

After becoming a mentor and investor in startups, I sometimes get phone calls late at night. When the founder has no one else to talk to. But it’s just tip of the iceberg.

The real problem is this: Startups are partly “a fake it till you make it” game. And founders play this game against everyone else.

When founders tell their family, they calm them with good news. Mothers prefer safety.

When founders hire employees they paint a glamorous picture. They can’t compete on salary.

When founders pitch investors they downplay the risks. They know investors hate risks.

When co-founders talk to each other they position for power. They know the media will only choose one darling.

The faking means that founders deal with difficulties and worries themselves. Successful bluffing requires not letting anyone know. Any poker player knows this.

But behind the “things are great”, most founders have tried this: Not knowing if they can make payroll next month. Been turned down by every investor in their area. Being so far of a milestone they have no idea how to reach it. Having taken devastating critique by investors in a board meeting. Had key clients churning. Having lost important team members to competitors. Having the product break down and not being able to identify the problem while support tickets are flying in. Expanded to new countries and not making a single sale two months in. Hired friends that don’t perform. Having been betrayed by a co-founder. Declined class reunions because there is nothing to show for yet. Lost romantic partners because they always came second.

If you are a founder, know that you are not alone. Everyone experiences this. Even those who are really successful. I hope that we can learn to be more honest about the hard things.

I will end with an old proverb. It says: If you want to go fast, go alone. If you want to go far, go together.

Conclusion made:

  • Entrepreneurship is partly “a fake it till you make it” game
  • Founders even fake it among each other
  • Founders face things they don’t share with anyone
  • Everyone would benefit if we could be more honest about the hard things

Check out Accelerace. We invest in tech startups.

Why luck matters for startups and how to be lucky

High performers will tell you luck is irrelevant. This post will do the opposite. It will tell you luck is important. It will explain how luck affects startups. It will guide you to be lucky. In the process you will experience the extinction of the dinosaurs, meet a different Netflix and learn about Swans. Luck is power. Use it.

A famous technologist and investor stepped on stage. He reflected and told stories from a long life in Silicon Valley. After spellbinding two hours, he concluded on everything he had learned. He spoke a single elegant sentence.

But what he said, left everyone in disbelief. Confusion spread. Was that it? Had they misunderstood? I couldn’t be.

The Narrative Fallacy

Imagine this famous experiment. A room with one million people. Everyone pairs up to play the game of heads and tails. Coins are flipped. Losers leave. Winners stay. Now half the people are left. New pairs are formed. And so it continues. In the end, one person is left. The winner. He has been right unbelievable 19 times in a row.

Let’s imagine we celebrate him. We give him awards. We label him genius. We study his technique. His fingers are rather long. We study his childhood. He used to play heads and tails with his brother to decide TV channels.

Let’s imagine we interview him. We ask him what makes him successful. What would he say? I suspect he would pause and think. And then he would do what most people do. He would fall victim to the Narrative Fallacy.

Good storytellers got many children

In pre-modern times survival wasn’t given. So humans strived for safety. Being safe was a matter of control. Control is understanding connections between Cause and Effect.

Humans achieved understanding of Cause and Effect through experience. Those who had eaten many berries knew which types caused stomach ache. Experienced people had high social status. They provided safety. The group made them Elders, Chiefs and Priests.

The experienced people were asked for advice. On all matters. Sometimes on things they didn’t really know. But they liked the role. It had benefits. Food and wives. The products of high social status.

So they started giving advice on everything. They made up Cause and Effect explanations. Like: Thunder is created by a hammer swinging angry god. Sickness is caused by evil deeds. Mermaids make sailors disappear.

The best storytellers had the most children. And so it happened. The ability to make up explanations spread. Today, it’s in all of us. The Narrative Fallacy.

Luck is real. Also for startups

Back to our winner of the coin toss contest. He gives the reporter what she wants. What everyone wants. The explanation for his outstanding performance. The Causes that lead to the Effect. The things he did to win. And people like the answer. It provides a recipe. We understand what caused his success. The story is created.

No need to explain the ridiculous nature of the heads and tails example. We understand that in a such experiment, someone will eventually win. We also understand that the winner was just lucky. But in the game of startups we do the same. We celebrate successful founders. We interview them. We study them. We make up stories about them. We identify Cause and Effect. But we rarely talk about luck. Its role is not well understood. In fact, it’s taboo.

The problem is this. We are afraid of luck. Afraid that attributing luck will harm us. Successful founders wouldn’t harvest social status. Authors wouldn’t sell books. Venture capitalists couldn’t raise funds. Accelerators and advisors couldn’t justify value. Like our heads and tails winner. We would never celebrate him in real life. Luck is not welcomed. But luck is undeniable real.

Every week someone wins the Lottery. Every day a child is adopted and gets a chance of a happy childhood. Most scientists believe that life and the birth of the universe are results of extraordinary coincidence. In other words: luck.

But if luck is (also) true for startups. How should we approach it?

Birds of serendipity

There is a phenomenon called a Black Swan. It’s an event that has no predecessor. It catches everyone off guard. It’s random.

Black Swans define our existence. The extinction of the dinosaurs. Birth of Jesus. The First World War. The iPhone. A Black Swan can happen today. Or tomorrow. Or next year. We don’t know. But we know it will define our future. And it will impact your startup. And your life.

The Black Swan has a cousin. The Grey Swan. It’s more frequent. But It will still surprise and impact you. Like Hip Hop, Snapchat and CrossFit. Together, these Swans are catalysts for change. And the change can be either: Good or Bad.

When Apple sent a Black Swan flying in 2007, it was bad news for many people. Namely for everyone that made Java apps. Not to mention Nokia managers.

But the iPhone was good news to others. Like a tiny startup called Unity. They had made it easy to build games for Apple devices. Two years after their founding, Apple revealed the iPhone. Then the App store. The iPhone became the world’s biggest gaming device. Unity benefitted. Today, it’s a unicorn.

How to be lucky

Luck is when a good Swan appears. But they hit randomly. And they are blind. They don’t know who they benefit. And they don’t care. Both good and bad Swans are random.

Because Swans appear randomly, the chance of getting hit is a function of time. That’s true for any random game. The more you play, the bigger the chance of winning. Our coin toss winner had to show up. Imagine Unity had folded before the launch of the iPhone. To be lucky is a matter how long you play the game.

But the risk of being unlucky is also a function of time. The longer you play, the bigger the risk of unlucky events. But there is a trick. The key to luck. And it’s simple, but hard. The hard part is the reason why we should acknowledge luck. Why it shouldn’t be taboo.

The trick is this: Don’t let the bad Swans kill you.

Not everything died in the mass extinction of the dinosaurs. Some animals and plants survived. Those that were versatile and scrappy. Like Amazon during the dot-com crash. Or Netflix ten years ago. They sent DVDs back and forth in envelopes. Internet enabled streaming was a really bad Swan. But they adapted.

If you can outlive a bad Swan you stay in the game. Richard Branson calls it protecting the downside. Fund managers call it hedging. Your mother calls it not putting all the eggs in one basket. They all understand that losing everything means game over. Your chances to be lucky goes to zero. But if you survive. Your chance of luck returns to random. You can be lucky.

The ultimate guide to luck

Here it comes. The ultimate guide to luck:

Guide for startups: Expose yourself to luck by staying on the market for as long as possible. Keep lean and protect your runway. Pivot if unlucky events occur.

Guide for people: Expose yourself to luck by staying alive as long as possible. Go out every day and interact with the world. Get up every time you fall.

Tomorrow a good Swan may come

Conclusion made:

  • Humans hate coincidence because it introduces uncertainty
  • Humans make up stories to downplay coincidence
  • Luck is taboo in entrepreneurship, but it’s very real
  • Luck comes as good Swans
  • The key to luck is to stay in the game and get up when you fall

Why crazy founders succeed and clever people don’t

Human resource professionals prefer clever people. This post will tell you why it’s paramount for founders to be crazy. It will take you back thousands of years. I will explain why Borat is funny. Most importantly, it will explain what kind of crazy is good for startups. Good crazy is power. Use it.

A young boy was crying. He felt a burning sensation on his chin. He had felt it many times before. The hand that hit him was accompanied with shouting. This time it came from one of his dad’s hunting partners. But the boy was learning. The shouting didn’t happen so often anymore. The year was 12.000 BC.

For most of human existence we lived in tight knit communities. We had to. Life was too brutal to survive alone. Surviving was succeeding.

They key to success was to stay part of the community. To fit in. To conform. Conformity is about behaving according to expectations.

Expectations about behavior are formed by norms. Norms are created by communities. And communities are organized around economic activities. In pre-modern times economic activities consisted of hunting, fishing and pillaging. Today economic activity is made up by companies.

Society prepares us for working in companies. We are taught conformity by parents, teachers and television. And so it happens. Most people conform. We even laugh at people who don’t. They appear funny. Like Sacha Baron Cohen’s characters: Borat, Ali G, the Dictator etc.

Do you know why these characters are funny? It’s because they are non-threatening. We know that they are too non-conformist to ever succeed in the real world. They couldn’t seduce your wife or steal your position in the hunting party.

But recently something incredible happened. A change so fundamental it has left the human mind disrupted.

Conformity has become obsolete

Evolution formed humans to ensure survival through conformity. Those days are over.

Today survival no longer depends on being part of a community.  We don’t starve or get killed by lions. Conformity is not necessary for survival. We don’t have to work in a company. We can leave the community. Founders leave to create startups.

Startups are not companies. Startups are dreams. Founders must materialize their dream. The way founders materialize the dream is by attracting resources.

All the resources startups need are held by other people. Such as: cash held by investors, cash held by customers, time and attention of advisors, time and energy of talented employees. All of these are controlled by other people.

Norms dictate how we interact with other people. Consequently, norms influence how we get access to resources. Norms limit options for obtaining resources.

Now imagine this: You want a cup of coffee from Starbucks. You have limited money. Most people would wait for a discount. They only got a single way to get what they want.

But, instead of waiting for a discount. Would you do the following?

Walk into Starbucks, wait in line. When it becomes your turn, you pull out your own cup and ask them to fill it and give you 50% off. Say that the discount is because you brought your own cup. The people behind you laugh and roll your eyes. But you maintain that you should get 50%. You say you won’t leave until you get what you want.

Most people won’t. Why? Because it would break norms. It’s crazy. But that’s exactly the kind of crazy successful founders are made of. Let me tell you why.

Crazy founders make good bets

Founders who don’t feel the necessity to be conform have unlimited possibilities for obtaining the resources they need. Creativity is their only limitation. People who are conform would wait for Starbucks to hand out vouchers. But that’s not the only advantage of crazy.

Crazy people make great bets. A good bet is one where you can win more than you can lose. Financial engineers would call it asymmetric risk reward profile. In the case of Starbucks, the reward is 50% discount. That’s hard cash. The downside is a No. People laughing and rolling their eyes. That’s pride. Startup success is defined by cash rather than by pride.

The real problem is this. Conformity is actually rational. It’s clever. A normal mind tells you that the downside is bigger than the upside. The upside is saving money, but the downside is being excluded from the community, and die. Except that today none dies. But evolution couldn’t keep up.

The right kind of Crazy

Good crazy is a special bug in the mental software. It’s when risk reward calculations don’t account for conformity.

Like when a young Steve Jobs looked up the biggest mogul in the computer industry in the phone book. He called Bill Hewlett and asked Bill to send him spare parts. For free!

Or when Henry Ford didn’t care about the power of the automobile industry. Henry Ford broke their patents and challenged the biggest name in the industry to race him.

Or when Ingvar Kamprad refused to deal with Swedish suppliers. Instead he went to Poland and came in bad standing with the entire Swedish industry. He didn’t care. His startup was Ikea.

Or the many founders in our portfolio companies at Accelerace  who do these things on a small scale all the time.

In most cases, the upside is obtaining something important. The downside is being shunned by the “community”. To crazy people that’s a good bet. And they take it.

What founders must do

If you are a founder, I suspect you are a little crazy. You have to be.

If you are crazy and sometimes feel bad. Don’t. Actually, you should cherish and nurture it. You played a trick on evolution. Mother nature is not easily fooled. Know that you have a mind perfectly suited for startups. You might lack friends who get you. I know. It can hurt.

If you are an aspiring founder and wonder if you are crazy enough, test it. Practice crazy. Order chocolate milk to sushi. Ask strangers for kisses. Buy expensive things with coins. Remember. In the little strange world of startups, crazy is good.

Conclusion made:

  • Humans were designed to be conform
  • Crazy people are not conforming
  • No conformity means endless possibilities to get what you want
  • Crazy founders make good bets
  • Crazy founders should feel good about being crazy

Why venture capital don’t invest small amounts and startups think they do

(David Ventzel is Investment Manager at Accelerace. Accelerace is not a venture capital firm. Accelerace is an accelerator and seed investor. The insight provided in the article doesn’t reflect how Accelerace operates)

Conventional wisdom will tell you it’s easier to raise a little money than a lot of money. This post explains why it isn’t so. It will explain why VCs don’t invest small amounts. In the process you will meet my mother. You will see how VCs actually make money. You will learn what only few people know. Knowledge is power. Use it.

The elevator rushed towards the 5th floor. Seconds ago me and my co-founder had been buzzed in. Adrenaline rushed through my body. You can do this! you can do this, I said to myself. Ding! The doors opened. Two investment managers greeted us. We smiled. Made firm handshakes. The show began.

Earlier that day me and co-founder had prepared for the VC pitch. We would focus on our unique product. Then finish with a modest ask. Just €300K. The firm managed €1 billion. Surely our modest ask would be no problem for these guys.

Against all expectations the VC turned us down. Or rather they said: you are interesting and we would like to follow your progress. That’s VC language for No.

I didn’t know it then. It would take another 10 years before I knew. But we had made a fundamental mistake. A mistake that many startups make. We asked for a modest investment. I know what you are thinking. How can that be a mistake?

It seems strange indeed. You will learn why it’s not. But first, I will take you further back in time. To a summer when I learned something important.

Lesson one. Small asks are easy.

I was 10 years old. Me and my friend wanted ice creams. Big ones. But we didn’t have money. So we did what children always do. Asked for money. But this time we made a cleaver plan.

My mother was our biggest concern. Sugar was her enemy. She baked chocolate cake without sugar. It just tasted like regular bread.

We started with my mom. “Mom can we have a little money for ice creams? We just want the small round soda ones” The small round ice cream was the cheapest and smallest available. She gave in and handed us the coins.

Then we went to my friend’s mom. We asked for the same and got the money. Then our neighbor. They didn’t have kids and liked us. They gave us money too. We collected enough money to buy ice creams called Magnum. When my mom learned, she was furious. I was too high on sugar to care.

That day I learned an important lesson. Something I suspect most people have learned. It’s easier to ask for a little than a lot. Why? Because the less you ask for, the less the giver sacrifices. We all know this. Later I would learn a new lesson. A peculiar one.

I would learn that the complete opposite is true for VC investments. It’s easier to ask for a lot than a little. Why? Because the more you ask for, the less the giver sacrifices. Few know this. You are about to become one of them.

Lesson two. Small asks can be hard.

See, the thing is this:

My mom could take money out of her wallet. VCs don’t have a wallet.

My mom didn’t have a lot of questions for me. She trusted me. VCs do have lots of questions. They don’t trust you.

Once my mom gave us the money, she had no responsibilities. Once the VC invest, they will have lots of responsibilities.

And those differences have names. VCs call them:

  1. Capital calls
  2. Due Diligence
  3. Portfolio management

Let’s find out how they actually work:

Capital Calls (asking dad for money)

My mom just took money out her wallet. It was easy for her to hand us money. VCs don’t have a wallet. In fact, they don’t any cash. That’s right. So how do they invest?

VCs got investors too. They are called LPs (Limited Partners). The LPs don’t like the idea of the VC swimming around in cash like Uncle Scrooge. So LPs keep the money until the VCs need them. When the VCs need cash, they make a Capital Call. They ask for money. No one likes asking for money. It’s unpleasant work.

But there is one thing about capital calls VCs do like. Management fees! Every time VCs invest, they get 2-3% of the amount in annual fees. And that pays for the nice office. It also means they get more money if they make big investments. Bingo. That’s’ the first reason why VCs don’t invest small amounts.

But there are even bigger and more important differences.

Due Diligence (checking the merchandise)

My mom trusted us. So she just handed us the money. It took 2 minutes. Obviously, VCs can’t do the same. They spend 3-6 months seizing the startup. It’s called Due Diligence. You knew that already. But did you also know how much it costs?

Due Diligence isn’t just a long process. It’s also expensive. It often costs + €100K. Lawyers, consultants and accountants send big bills. The cost for Due Diligence is taken from the invested amount.  But Due Diligence is not proportional to the size of investment. It’s about the same for €10 million as for €1 million.

To spend €100K to do a small investment makes no sense. Even at €1 million the costs would be 10%. Bingo. That’s the second reason why VCs don’t invest small amounts.

Portfolio management (traveling to board meetings)

My mom never expected to see her money again. It was a gift. VC investments are not. A VC firm is a business. It has revenue and cost. The main revenue comes from fees. The main cost is time.

Most of the time is spent on board of director work. VCs prepare for meetings. They often travel far to attend them. Individual investment managers can sit on more than 10 boards. I have a friend who cried when he reached 12.

The problem is this. With each investment they get a new board seat. Board seats are time. Time is cost. A business wants to reduce costs. So the VC wants to reduce board seats. How? By making fewer, but bigger investments. And Bingo. That’s the third and final reason why VCs don’t invest small amounts.

What founders must do

Founders can do two things. Stop approaching VCs. Or get a valuation that justifies a big enough investment. I suspect you want the latter. How? Well, that’s a different topic. I plan to write about it. But I suggest you start with my earlier post on valuation.

That’s it. It took me 10 years to learn. Many up and down elevators. Including 3 years as an investment manager at Accelerace Invest. Now you know too. It took you 10 minutes.

Conclusion made:

  • VCs don’t have cash. They ask LPs for money and take a fee
  • VCs do due diligence and it’s really expensive. Only big investments can pay for the costs
  • VCs’ main cost is time spent on boards. The fewer investments, the fewer costs
  • Founders must either stop approaching VCs or get a valuation that justifies a big investment. Or turn to another type of investment vehicle.


Why all startup investors are dumb (and why that’s good)

Advisors will tell you to look for smart money. This post will not. Instead it will do the opposite. It will tell you to stop looking for smart money. It will disturb what you know. It will mess up your vocabulary. But in the end it gives you a new perspective on investors. Perspective is power. Use it.

I used to be smart. When startups asked for smart money, I felt they were looking for me. Then something happened to me. I turned Dumb. This is the story of how it happened.

It all began in front of a stage

I was in a big white room with a beautiful ceiling. I was facing a stage. I took notes. I was a judge in a pitch competition. I felt at home. I was flanked by other smart people. Maybe except for the accountant on my right.

The pitches were good. The founders had practiced. They wanted to change the world. They looked for “smart money”. All founders do. It makes sense. Nobody wants stupid investors. I could sympathize. I remembered why. The memories and feelings came back. It was almost 10 years ago….

I started feeling smart

I was graduating business school. Jobs were plenty. I didn’t want one. Instead, I co-founded my first tech startup. We pitched to investors. They all seemed dumb. They just didn’t get it. I knew because they didn’t invest. Then one day we got lucky.

We met smart people. They asked the right questions. They were smart. I knew because they invested.

After my first startup I did another one. We sold it. I felt smarter than ever. Then Accelerace called me. They wanted me to join as an Investment Manager. I said yes. They could use a smart guy I thought.

My job is to spot startups, mentor them and invest in them. Pitch competitions seemed like a good place to be. So I went. And went. And went. Until the day I found myself in the big white room with the beautiful ceiling. I had grown smarter for so long now. Little did I know that it was about to change.

The question that changed everything

The next day I met with one of the pitching startups. I felt I should. They seemed like me in 2006. They repeated they were looking for smart money. Then it happened. My descent to stupidity began.

I don’t know why. But I asked an odd question.

I asked: what do you mean with “smart” money?

They looked puzzled. It was a strange question. They said: You know… smart investors.

I was silent. It was awkward.

Do you mean someone with a high IQ? I asked, knowing that it was a silly question.

They laughed. Of course not, they said. Good, I was thinking. I knew that Lewis Terman had proved long ago that high IQ and success is not related.

They clarified: We want someone who provide more than just money. We want someone who can help us.

So you mean, active investors? I asked. I was surprised to hear myself probe deeper.

I guess, the CEO said. But it must be someone who knows what they are talking about.

So you mean, investors with domain expertise? I asked. They started getting a little annoyed.

Well not necessarily, they said. Someone who has been successful themselves!

Do you mean someone who has made a lot of money? I asked.

Yes, they said. But we don’t want a guy that made money being lucky. We want someone smart!

By then, they thought they had settled the question. They hadn’t. Instead they left me shell-shocked.

I couldn’t sleep that night. The meeting was replaying in my head. What bothered me was this: If we use the term “smart money”. Then shouldn’t we know what it means? Why couldn’t they define what they meant? Could they have used the term without themselves knowing what they meant. Do we all do this?

Also, if smart money exists, then dumb money exists too. Who are the dumb money?

Oh right, investors who aren’t active. Wait, they would be inactive investors. Not really dumb.

Oh yes, the non-experts. No wait, the opposite would be generalists.

Right! Got it! People who made money, and had NOT been lucky.

The last phrase just didn’t seem right. I couldn’t even lie down anymore. I had to go for a walk.


The problem was this: Everyone I know who made money, have also been lucky.

I have a friend. He co-founded a startup in 1998. His co-founder could code. My friend could sell. It was a match made in heaven. They worked hard and made wise decisions.

They did everything with “The Internet”. Everyone wanted it. The Internet. So they took the company public. The stocks soared. The co-founder wanted a house. Or maybe his wife did. So he sold his stocks. He made tens of millions. My friend didn’t need a house. He was single. He could wait. So he did. He never made a dime.

The difference. Pure luck. Or the absence of it. Today people think of the co-founder as brilliant. Who wouldn’t. The guy IPO’ed and drives a Ferrari. My friend. Well no one really knows him.

I walked around. I was recalling stories of successful people. Each story had moments of extraordinary luck.

Like the time IBM wanted to buy an operating system. IBM scheduled a meeting with the CEO of a software company in Seattle. The CEO didn’t show up. Instead, the IBM people went to see young Bill Gates. They had time to kill. They didn’t intend to buy anything from Bill. But they did. They called it MS DOS and that luck defined Microsoft.

Or the time a young Dane named Morten Lund helped his friends.  Morten handed them 50K to support their “project”. That project turned out to be Skype.

My head was clearing up. I was certain now. There is no such thing as smart money. Everyone who makes money is (also) lucky. And then it dawned on me. Like a lightning. I stopped walking.

I am dumb, I whispered. I am a dumb investor, I said, now a little louder. I am dumb! Stupid! a Moron!

Scientists would have shouted: EUREKA! My words were less elegant.

I turned even dumber

You would have thought that was the end of it. But it didn’t stop there. The more I looked the more stupidity I saw.

It is estimated that 99% of all mutual fund managers don’t beat the market over time. The number who do outperform the market is indistinguishable from luck. Like people who win jackpot multiple times.

It turns out that most millionaires simply did business in times of extraordinary economic activity. The year of birth is very deterministic for your wealth. Not exactly absence of luck.

So why did I write this post? I have a proposal. I think we should stop using the term Smart Money. I don’t think it exists. Reality is just too complex to plan success.

My advice to founders raising funding.  Try to be specific. Say, that you want active investors. Or investors with entrepreneurial background. Or investors with specific expertise. Or investors who like you.

If founders look for smart investors, I’m afraid they find none. They only find people who think they are smart. Like me some years ago. And I turned out to be dumb. Strangely, I feel smarter now knowing this.

Conclusion made:

  • Everyone who ever made money have been lucky
  • We (as an industry) need to stop use the phrase “smart money” and be specific instead

Why startups get rejected by venture capitalists (and why Warren Buffett is involved)

Accelerator programs will connect you to venture capital firms. This post will not. Instead it will do the opposite. It will distance you from venture capital. The distance will allow you to understand them. In the process I will tell you a personal story. I will over-generalize and simplify venture capital. I will even blame Warren Buffett. But in the end you will understand VCs. Understanding is power. Use it.

Most founders pitch to venture capitalists. Founders think they should. VCs exist to fund startups. Everyone knows this.

But this is not what most founders experience. Founders experience something like this: They got a startup. The team is good. The product is good. They have customers. They even got angel investors. But VCs don’t invest. So why don’t they invest?

I used to be puzzled myself. As a founder I thought they didn’t get my idea. They didn’t believe what I believed. They didn’t believe in me. I felt rejected. It hurt. I smashed my bike into a tree while being on it. Then I met someone. He was miserable. But that meeting changed everything.

I became an investor

But before this meeting something else happened. I got offered a position at Accelerace Invest. I became Investment Manager in a micro VC fund of €35 million. We invest in startups graduating our accelerator programs.

I started understanding the investment side of the game. We aren’t really a VC though. We can only do seed investments.  The “real” VCs still puzzled me. That was until the day I received a mail from LinkedIn.

It was an auto generated mail. But it caught my eye. It said that a friend had gotten a new job. He was now VP in a top 3 venture capital firm. I called him. He was excited. It was a dream coming true for him. He was mistaken. But it took two years before he learned.

The napkin that changed everything

I met him in London. It was rainy. The weather fitted his mood. He was miserable. With a tired voice he told me: For the past two years he had not invested in a single startup. I was shocked. What!?  For two years he had been doing nothing!?

Then he told me something that made all the pieces of the puzzles fall in place. Suddenly all the rejections from VCs I received as founder made sense. Now I knew. I felt at peace. It was awkward it the midst of his misery.

He explained that his firm manage multiple funds. He was investing out of a €100 million fund. He told me that it was a 10 year fund. They spend the first five years investing. The remaining five years they try to exit the companies. I knew how this worked. Almost all venture capital firms have 8 or 10 year funds and operate this way. It was the next thing he told me that really opened my eyes.

He told me that the LPs (the investors in their fund) expect 20% in annual gain. The gain is called Internal Rate of Return (IRR). Simply put, they expect the fund to increase in value 20% every year.

It made sense. I knew that good hedge funds generate 20% return per year. Warren Buffett has generated 20% on average the last 50 years. Naturally, the partners of the VC fund promise the same return. If not, the LPs will give the money to Warren Buffett.

My friend grabbed a napkin. He furiously started drawing a table with numbers. He almost seemed like a mad man. He asked me: Do you know how much 20% every year for 10 years is!? Do you know how much money we must return to our LPs!? I looked at the napkin. I found the intersection between year 10 and 20% IRR. It said 6.

6 times! We need to return the money 6 times, he said, while throwing the napkin up in the air. In other words, he had to turn €100 million into €600 million. If not, Warren Buffett gets the money. No wonder he looked tired.

But something bothered me. If he was under so much pressure, then why didn’t he invest like crazy? It made no sense. If he only had 10 years to turn a €100 million into €600 million, then why had he not invested yet? Actually he only had 8 years by then. I could almost feel his stress.

But I already knew the answer. This part was no different from my job at Accelerace Invest. We have the same problem. The problem is math.


One startup to rule them all

Most startups fail. They either go under or become zombies. A zombie can feel like a success to a founder. The startup grows into 10 to 30 people. Maybe it makes a little profit. The founder has built a company. But it doesn’t hyper scale. In the eyes of an investor, it’s a failure. A zombie. The truth is that only 1 out of 10 startups hyper scale. No hyper scale means no IPO or exit to Google. The money is stuck. It’s a nightmare for investors. Imagine you couldn’t withdraw your money in the bank.

The problem is this: The one startup that exit must single handily make the 20% annual return. The fund must make €600 million on the sale. A VC typically owns a 1/3 at exit. That means the startup must exit for €1.8 billion. And in less than 10 years. Actually down to as little as five years for investments done in year five.

Suddenly everything made sense. Why I had been rejected so many times as a founder. It wasn’t because the VC didn’t get it. It wasn’t because the VC didn’t believe in me. Admittedly that might have been a factor. But probably, math was the main problem. I hadn’t made it clear how my startup could exit at €1.8 billion in a few years. I didn’t know that I was supposed save his fund from being outperformed by Warren Buffett. I just thought we should grow and make profit. I didn’t know. Most founders don’t.

I looked at my friend with an expression of understanding. I picked up the napkin from the floor. It’s hard to find a startup that can return that much money in so little time, I said. That is why you haven’t invested yet. He nodded. So hard, he said, while falling back in his chair. It turned out being a venture capitalist wasn’t fun after all. He just wanted to help founders. Suddenly I felt I had the better job.

Think twice

Before you open your pitch deck to correct your exit slide, stay with me. It is not about convincing the VC that you can save his fund. It’s not about the VC at all. It is about you.

Do you really want to play the VC game? Does your startup truly have that kind of DNA? If you do. A VC can turn you into a unicorn. You can become Mark Zuckerberg. If not, the math behind a VC will crush you. I have seen it happen. Many times. And I am planning to write about it. To illustrate what happens to a startup when VCs invest. What happens if the startup doesn’t really have that DNA. If you want to read that post, keep an eye on my blog.

Conclusion made:

  • VCs compete with other fund managers,  including Warren Buffett…ouch!
  • VCs want you to make the entire return of the fund in a very few years
  • VC funding is only for a very few types of startup and founders


How to build a Mastermind for your startup

This is a follow up post on my earlier blog post: ‘Why boards don’t work for startups and how to do it right’. If you missed that post, I suggest you read it first. It gives the right context for this post. Find it here.

My last post argued that boards were invented to solve a problem that startups don’t have. I argued that boards should be replaced with a Mastermind. This is a post on how to construct the Mastermind and how to make use of it. Ideas are power. Use them.

The purpose of the Mastermind

The fundamental purpose of the Mastermind is to help the founders turn their startup into a company. Startups are eighty hour weeks and burn money. Companies are forty hour weeks and make money. How can that be? How can input not equal output. Something isn’t right.

The difference is effectiveness. Companies apply their resources effectively. Startups don’t. And the reasons for this are relatively simple.

Startups need to spent time on plumbing. Founders need to set up payroll, implement a CRM system and assemble furniture. Companies got the plumbing done. Employees can spend all their hours on execution. But that fact only accounts for a tiny part of the difference in effectiveness. The big culprit is hidden elsewhere.

The real difference is this: Companies know exactly how to sell their products and who to sell them to. They know because a long time ago, their founder did eighty hour weeks. His picture is now framed on the wall.

Startups don’t know how to sell their products. Or to who. But they try. And try. And try. Trying is really experimenting. To be experimenting is to approach things differently every time. Founders approach customers in different ways. The times the approach doesn’t work is time spent that didn’t result in money. Bingo! We found the culprit of the ineffectiveness of startups. The main reason why twice the work hours do not equal twice the money. But how do we solve this problem?

Unfortunately, the problem can only be solved by continuous experimenting. By checking of things that don’t work and getting closer to what works. All human progress has been a result of experimentation. Thomas Edison knew this better than anyone.
The good news is that experimentation can be done wisely. So founders need a tool that makes them smarter. And by now you know where I am going.

The Mastermind is that tool. Groups outperform individuals every time. Humans have become the dominant species because of we are good at collaborating. Few would like to face a lion alone.

The Mastermind is the group that must help the founders experiment wisely. The question is how to create it?

Construction of the Mastermind

First the Mastermind must be constructed right. This is the most important part. Boards are constructed to protect interests and secure influence. Advisory boards are mostly constructed to look good towards investors. The mastermind must be different. It must be constructed with the single purpose of helping founders experiment smarter.

Now for the practical part. How to do it. And I want to start with an apology. I will give you a guide. I don’t like guides. They are simplistic and force multidimensional things into a linear format. I feel ashamed. But I found no better way to do it. I have rewritten this section over and over. Anything else than a “step by step” format becomes messy. Sorry. So here we go:

Step 1. Choose the right people. I mean the RIGHT people.

Getting the right people in the Mastermind is the most important. First of all, each member must want to do it. They must fundamentally want to help. They must be people who have experimented a lot and learned from it. Titles and career success can be a bad proxy for this. Take long walks to understand how much they have really learned. They must be reflective. They must fundamentally respect the other people. They must be factual and honest. If you doubt any of these qualities, find someone else. Find 3 people that match.

Step 2. Establish the Mastermind on a clear philosophy

The Mastermind must be constructed on a coherent philosophy that every member agrees upon. The philosophy should be something close to this: Every member is here to help the founders experiment wisely in order to speed up the process of turning the startup into a company. Any member not buying into this philosophy will disturb the work of the group. Be sure everyone is aligned. That includes the founders.Get everyone together and shake hands. Maybe even sign something.

Step 3. Execute meetings often and structured

Use the Mastermind. Make it your most important institution. If meetings are too far between, most the time is spent bringing everyone up to date. It becomes reporting. Each meeting should pick up from the last meeting. Weekly meetings work. Keep them short. Maximum 1 hour per meeting. Do long sessions once in a while.

The meetings should have a fixed agenda with only one topic. The topic should be experiments and learning. The founders must give insight into the latest experiments. The Mastermind will discuss how to interpret the results and what to do next. Limit the topic to this. Save the rest for other forums.

Step 4. Appreciate your Mastermind

Treat your Mastermind right. They have chosen to help. Don’t choose people who will only help if they get paid. But pay people who help. Most founders are not good at this. Pay them with recognition. Pay them with acknowledgement when you succeed and get interviewed. Pay them by showing respect for their time. Start meetings on time. End them on time. Make the time they spent productive and pleasant. Pay them money or stock if you want. Pay them anything you can. A true Mastermind is worth it.

Step 5. End the Mastermind

I said that startups are not companies. I said that companies have boards, but startups should have Masterminds. I said that the purpose of the Mastermind was to turn the startup into a company. Consequently, I must also conclude that the Mastermind must end. It will make itself obsolete. The day it happens the group should celebrate. They succeeded.

One day the startup has found an effective way to sell their product. One day they have identified the people who want to buy it. Now they just need to do more of it. The founders raise series B, C and so on. They go into hyper scale. They hire lots of people. Professional management will join. The founders will bring more investors onboard to finance the growth. New problems will arise. But the new problems well dealt with by the traditional board.

The board has stood the test of time. It works. But no governing structure has yet stood the test of time for startups. The modern tech startup is still a new invention. The Mastermind just might be what we have been missing.

Conclusion made:

  • The purpose of the Mastermind is to help the founders turn their startup into a company by speeding up the process of experimenting their way to a viable business model
  • The right construction of the Mastermind is vital
  • The successful Mastermind will make itself obsolete over time