We finally sat down with Meng, the co-founder of JFDI (an accelerator program) for a chat. Meng is a man of wisdom, constantly drawing analogies from the back of his head, akin to pulling rabbits out of a magician’s hat. He was also spot on to question the sustainability of the business model and quick to point out some the company’s vulnerabilities.
The three main concerns that was raised are:
- a lack of a technical cofounder
- a lack of domain expertise in the snacking/F&B industry
- a lack of commitment from the co-founders
What bothered me the most was the comment on a lack of domain expertise which challenged my thinking as an entrepreneur.
How can a founder with no technical expertise and zero domain expertise convince accelerators to accept the team or investors to part with their money?
1. Are Domain Expertise & Industry Experience overrated?
I’m sure every founder started off with a deep desire and belief that they can create better a product than what’s already out there, whether they are in an industry or not. Richard Branson didn’t know about record labels, Tony Hsieh didn’t know about shoes and the list goes on. This is an innate quality in all founders right? So why don’t investors see that?
I decided to google.
From Mark Suster:
Domain expertise doesn’t guarantee success, but it is more likely to minimize certain risks, particularly those around market fit and sales.
Before they’re presenting I want to know “what unique experiences you bring to the table that are going to give your business a faster time to market, a better designed product, more knowledge of your customers problems – a higher likelihood of success.” It’s what many VC’s call, “An unfair advantage.”
I know that not every entrepreneur has deep domain experience when they launch their ventures. That’s OK. Bill Gates, Steve Jobs and Mark Zuckerberg didn’t really either. Some people claim that too much domain experience can actually harm you because you become cynical of all the things that can’t be done – you’ve got the scars to prove it. There IS some truth to this argument. But if you have it – use it. If you don’t have it – see if you can pick up team members that do. There is no doubt in my mind that on balance it offers you a huge Unfair Advantage.
From The Instigator:
I recognized early on just how important it was to establish myself in the HR / recruitment space. With my experience in brand building and positioning, I was able to fairly quickly and successfully get some level of recognition in the space. But in hindsight, I probably spent too much time doing that, and overvalued those efforts. Without question there was value in establishing myself and Standout Jobs as leaders and innovators in the HR / recruitment space, but if I had gone in with domain knowledge and experience already, I would have started in a much better position.
Mark MacLeod suggests that domain knowledge and aggression are the two startup founder traits that stand out. Is domain knowledge really one of the top two traits that define successul founders and startups? I’m cautious about over-estimating its importance, even in light of my own experience, but I do think those founders that have domain knowledge (versus those that don’t) have a clear advantage in terms of the amount and quality of data they possess. That makes it easier for them to make better decisions on a consistent basis. And generally that leads to winning.
On the flip-side,
Domain expertise, seems empirically useful but is not critical. The Airbnbs knew zero about the hospitality industry when they started. They just knew they’d had a life-changing experience when they rented out airbeds on their floor during a conference. The Stripes didn’t know anything about payments before they started Stripe, except what any hacker who’d tried to process payments before Stripe did (that existing options were terrible). And it was because the Homejoys didn’t know how to clean, and thus found themselves living in squalor, that they ended up starting Homejoy.
From Paul Graham:
Know nothing about business. This is another variable whose coefficient should be zero. You don’t need to know anything about business to start a startup. The initial focus should be the product. All you need to know in this phase is how to build things people want. If you succeed, you’ll have to think about how to make money from it. But this is so easy you can pick it up on the fly.
I get a fair amount of flak for telling founders just to make something great and not worry too much about making money. And yet all the empirical evidence points that way: pretty much 100% of startups that make something popular manage to make money from it. And acquirers tell me privately that revenue is not what they buy startups for, but their strategic value. Which means, because they made something people want. Acquirers know the rule holds for them too: if users love you, you can always make money from that somehow, and if they don’t, the cleverest business model in the world won’t save you.
So why do so many people argue with me? I think one reason is that they hate the idea that a bunch of twenty year olds could get rich from building something cool that doesn’t make any money. They just don’t want that to be possible. But how possible it is doesn’t depend on how much they want it to be.
For a while it annoyed me to hear myself described as some kind of irresponsible pied piper, leading impressionable young hackers down the road to ruin. But now I realize this kind of controversy is a sign of a good idea. The most valuable truths are the ones most people don’t believe. They’re like undervalued stocks. If you start with them, you’ll have the whole field to yourself. So when you find an idea you know is good but most people disagree with, you should not merely ignore their objections, but push aggressively in that direction. In this case, that means you should seek out ideas that would be popular but seem hard to make money from.
We’ll bet a seed round you can’t make something popular that we can’t figure out how to make money from.
The Lean Startup Methodology and Customer Development can most likely counter (somewhat) a lack of domain expertise because these strategies are driven by engaging customers, discovering key problems and then implementing solutions. Their systematic approach to building startups, finding product/market fit and scaling through information gathering & assessment help remove errors that might be caused by not knowing an industry. So you can “learn the market”. But even here, without true domain knowledge, you may not be asking the right questions when speaking to prospects, and you may be approaching things incorrectly (but simply be unaware).
We started BoxGreen with minimal experience in the industry. We also didn’t do it because we thought it was cool to start something. We started this idea because we worked on a problem that grew organically out of of own experiences – not being able to find healthier snack options at work.
How did we go about doing it? We did what we possibly and humanly could, using the least resources to test the market, iterating our product, interviewing the customers and being open and humble along the way when we meet learn from existing industry players. To some extent, I think this naive optimism has worked in our favor to provide fresh perspective into the industry.
Clearly, having domain expertise helps in a business but is not a prerequisite. What we lack of, we compensate by working doubly hard to out-learn and out-execute other existing players. Large incumbents don’t have the luxury to push our products or respond to market feedback as fast as we do. Having a tight feedback loop and high customer touchpoint helps our iteration probably and is probably our best bet right now.
Are we fooling ourselves to think we can be the next airbnb, next stripe? we probably are but I don’t think there is anyone willing to bet big on the company, other than the founders – us. The gumption to think big is something I feel Startups in SEA are lack of and from the advice I got from various mentors so far, thinking big, having a vision and sticking to it seems to be the way to go.
Afterall, who understands the customers better than us?
2. Technical Co-founder Where Art Thou?
The most valuable insight isn’t that a non-tech founder needs to get super-technical. Rather, it’s that he needs to demonstrate a willingness to do everything he possibly can. That is the secret sauce. It’s not about being able to talk shot for shot with a super-techy coder. It’s about not being the kind of person who throws his hands up in the air and sets limits to what he can or can’t do, or will or won’t do. Being a successful entrepreneur means doing anything and everything it takes to get to success. And it’s a serious red flag when the co-founder, from the get-go, is already broadcasting that he’s setting limits for himself (such as not even attempting a prototype)
While interviewing potential technical co-founders, I find myself having to sell the business idea to most potential candidates instead of sensing a passion to want to part of something big. Again, I guess it is my duty to evangelize instead of expecting a natural fit to happen. Conversations tend to lean towards more of a “what’s in need for me” more than a “how we can work together and make something happen”. Andrew & I were also concerned about future team dynamics and how well we would all work together.
So are we currently doing whatever we can to get the support we need? I think we are. Are we selling the vision of the company as hard as we can? Yes but our pitch could be tighter (that’s something I can benefit from JFDI). This is certainly on the immediate to-do list.
3. Commitment from Co-founders.
Below are a few points from PG which I think resonates where Andrew and I are right now.
Family to support
This one is real. I wouldn’t advise anyone with a family to start a startup. I’m not saying it’s a bad idea, just that I don’t want to take responsibility for advising it. I’m willing to take responsibility for telling 22 year olds to start startups. So what if they fail? They’ll learn a lot, and that job at Microsoft will still be waiting for them if they need it. But I’m not prepared to cross moms.
What you can do, if you have a family and want to start a startup, is start a consulting business you can then gradually turn into a product business. Empirically the chances of pulling that off seem very small. You’re never going to produce Google this way. But at least you’ll never be without an income.
Another way to decrease the risk is to join an existing startup instead of starting your own. Being one of the first employees of a startup is a lot like being a founder, in both the good ways and the bad. You’ll be roughly 1/n^2 founder, where n is your employee number.
As with the question of co founders, the real lesson here is to start startups when you’re young.
Not ready for commitment
This was my reason for not starting a startup for most of my twenties. Like a lot of people that age, I valued freedom most of all. I was reluctant to do anything that required a commitment of more than a few months. Nor would I have wanted to do anything that completely took over my life the way a startup does. And that’s fine. If you want to spend your time travelling around, or playing in a band, or whatever, that’s a perfectly legitimate reason not to start a company.
If you start a startup that succeeds, it’s going to consume at least three or four years. (If it fails, you’ll be done a lot quicker.) So you shouldn’t do it if you’re not ready for commitments on that scale. Be aware, though, that if you get a regular job, you’ll probably end up working there for as long as a startup would take, and you’ll find you have much less spare time than you might expect. So if you’re ready to clip on that ID badge and go to that orientation session, you may also be ready to start that startup.
While we’ve been operating our startup with a one-step-at-a-time mindset, I think we are at the crossroad where some hard decisions have to be made. Thankfully, Andrew & I’ve been pretty open and understanding which have positively led to where BoxGreen is today.
Fund raising, getting accepted into an accelerator program is an art. It takes up a good amount of time and sometimes I wonder if we should just keep our heads down to focus on the customers instead. I’ve often gotten feedback from fellow entrepreneurs that getting into an accelerator is an expensive and unnecessary route, which we could do without. I’ll pen my thoughts down in greater detail in the next few posts but in short, I do see value in being a part of something bigger like an accelerator, the resource and network it provides and how the eco-system can truly benefit from a great accelerator, like YC.
I will try to pen down more “bare it all” posts on our startup in the future.