“Building a startup is an uphill race on a poorly marked course that in the beginning has very few spectators,” writes Matt Clifford and Alice Bentinck, co-founders of Entrepreneur First, in their book “How to Be a Founder”.
It’s a challenge made a hell of a lot easier if you’re starting with the right ingredients–top talent, resources and networks–most of which are concentrated in Silicon Valley. But what happens if you’re not located in a tech hub?
“The world is missing out on some of its best founders,” says Matt. “We think the desire to be an entrepreneur is culturally driven by peer groups, networks and communities you’re in. When you start to think like that, you realise that many more people could become founders. As a result, we’re missing out on company’s that ought to exist.”
After a decade of working with thousands of ambitious individuals, selected purely based on talent, ambition and skill, they’ve developed a methodology, culture and system for helping people find a co-founder and get started on their idea.
As part of our Stacking the Odds interview series, Jackie Vullinghs asked Matt to share his unique perspective on what makes a founder and idea successful. We've distilled some of the frameworks and day-to-day advice that Entrepreneur First (EF) gives founders to increase their chances of success and encourage them to get off the sideline and get started.
Why it’s riskier not to start a startup than to start one
Startup lore is marked by stories of founders putting everything on the line to build the next unicorn company. When the outcome presented is binary–success or failure–it’s instinctual to second-guess whether it’s worth the risk. But Matt believes this is an outdated narrative. “It’s worth playing out what we mean by risk today,” says Matt. “The way we talk about entrepreneurship and risk is like a 19th Century Charles Dickens novel where people that took a risk and couldn’t pay their debts ended up in jail.”
The 20th Century version of this was that if you start a company and it doesn’t work out, you’re a failure and won’t get another job. Luckily, those who believe that are few and far between nowadays. “The great thing about an increasingly visible startup ecosystem is that many people see the value in someone who’s tried and failed at building a startup,” says Matt.
So what has the narrative shifted to today?
“The risk of not starting a startup is greater than the risk of starting one.”
“If you’re talented and ambitious, starting a company is an asymmetric bet. The downside is capped; the worst you lose out on is time, which is valuable. But if you build a wildly successful company, you can generate enormous wealth.”
In Matt’s experience, it’s not purely a financial thing for founders. It’s the intellectual capital from learning and pushing yourself to the limit from a skills perspective. And it’s the social capital that comes from building a network of people with a similar mindset to you.
What if you're not ready?
Once you’ve gotten over the risks of starting a startup, the next thing to conquer is readiness. “One of the worst reasons not to start a company is that you’re not ready,” says Matt. “But you’ll never be ready in the sense of knowing everything that you’ll need to know along the way.”
At Entrepreneur First, Matt encountered many 20-somethings with ambitions to start a company only to find years later they’re still at McKinsey on the promotion treadmill waiting for their next dopamine hit. But feeling like you need to bank up a load of experience doesn’t necessarily equip you any better for the founder journey.
“Your capabilities as a founder aren’t some store that you have from the beginning and draw from over time. You learn by doing as a founder.”
To test their readiness, many founders start working on their ideas in their spare time. But at some point, you must burn the boat and commit to it full-time. “If you give yourself an easy way out, you’ll take it,” says Matt.
Matt’s advice is to frame it as a mini-sabbatical. “Give yourself six months,” says Matt. “If at the end of that you have no signal on whether people will buy what you’re selling, or investors interested in funding you, then maybe it’s not the time for you.”
How to find co-founder fit
After over a decade of helping people find their co-founder, Matt has the data and instinct for what makes a successful co-founding match. All of it boils down to a core insight that drives how they build teams at Entrepreneur First: productivity.
“The question we get founders to ask themselves is, ‘In this co-founding relationship, are you the most effective version of yourself?’” says Matt. “Are you reaching your peak level of productivity? If not, chances are you’re probably in the wrong team.”
The second thing Matt looks for in a co-founding match is alignment. “It’s easy to get excited about things in the abstract,” says Matt. “It’s only once you’re in the weeds of doing it that you realise you’re not aligned on the end goal.”
To combat this, Matt’s advice is to talk to potential customers together straight away. “It’s hard to disguise a lack of alignment when talking to people who might buy what you’re selling,” says Matt. “When you have to get into the details of what you’d build for the customer, you figure out if you’re trying to build the same thing or not.”
There’s a couple of common thinking traps that Matt sees people fall into when it comes to finding a co-founder:
- We need to be friends: “A lot of people think the most important thing is whether or not this person is their friend. I don’t think it matters,” says Matt. “If there’s interpersonal tension on day one, they’re probably not the right person for you. But assuming you get on, the thing you should watch out for is whether you’re making each other more successful.”
- We’ll work it out: “One of the worst things you can do if you’re starting a company with a stranger is think, ‘It’s not working, but we’ll figure it out’. You won’t figure it out,” says Matt. “One thing we’ve observed at Entrepreneur First is the best founder doesn’t necessarily pick well on day one, but they get out of the wrong teams quickly.”
Why will you win as a founder?
The retelling of startup success stories may have you believing that ideas appear like epiphanies that founders then pursue single-mindedly and doggedly. That’s not the case in Matt’s experience. “If I look at the most successful companies that we’ve helped to build, almost all of them are ideas people didn’t have on day one,” says Matt
If the starting point isn’t the idea, then what is it? “Edge,” says Matt.
“Edge is a personal, unfair competitive advantage. It’s why you’ll win as a founder.”
“What is it about your skills, background, experience, hobbies, obsession, side projects and communities that you’re in that give you an advantage starting this company?” says Matt.
Broadly speaking, when it comes to edge, Matt is looking for one of three things:
- Technical edge: Do you have a deep technical expertise that few other people have?
- Domain edge: Do you understand a problem, customer group or industry in a way few others do?
- Catalyst edge: Do you have a catalytic energy that makes things happen?
Figuring out your edge gives you a clear sense of what you bring to the table. You can use it to hone in on the ideas you’re well-suited to build and find a co-founder who best complements you and your skills.
Make ambition your magnet for resources
If you were to abstract what founders do, it’s to attract resources that compound into a company over time. “The essence of what you’re trying to do as a founder is turn nothing into something,” says Matt.
To do that, you need to attract two important resources: talent and capital. And what attracts these resources? Unbounded ambitions.
To build a generational company, you'll need to hire amazing people. The tricky thing is, amazing people have a lot of options. Particularly at the start, when you’ve got nothing, how do you convince talented people that they should join your company? “Talent is attracted to ambition,” says Matt.
“The only way you can persuade people to join your startup is by telling them a story about how what you’re building is enormous; believing it, and having a plan for achieving it.”
To hire and pay these talented people, you'll need capital. If venture capital is the funding route you want to go down, you need big–billion dollar big–ambitions.
“I know the VC model, and it makes no sense to invest in ideas that can’t be enormous,” says Matt. “Even in a seed round, if the partner doing the deal doesn’t believe this could be a billion-dollar company, they won’t invest. The history of venture capital tells us you need enormous winners to make the numbers stack up.”
Most people’s intuition is to play it safe to avoid failure. In the world of startups, this looks like choosing a smaller and less ambitious idea. If talent and capital are attracted to ambition, you end up in a world where you can’t hire the people you want or raise the capital you need if you lower your ambitions. “Any gain you made by trying something less ambitious to make it easier for yourself is completely swept away by not being able to attract those resources,” says Matt.
“I had a friend who opened a cafe at the same time we started Entrepreneur First,” shares Matt. “It was a beautiful, successful cafe in Central London. But running it was as brutal, stressful and difficult as any technology company we’ve ever funded.”
“She sold it in the end, but the size of the outcome was a fraction of the reward you’d get from building a software company with the ambition of being a global winner.”
Separating your beliefs from your hunches
You’ve been through the process of figuring out your edge, finding a cofounder, and landing on an idea together. The next step is to take action. There's a common mistake Matt sees many founders make at the beginning. “It’s tempting to do some market sizing, competitor mapping and build a business model. But you can’t validate your idea at your desk,” he says.
One of the benefits of being part of an EF cohort is what Matt calls an environment of “extreme urgency”. Everyone knows they’ve only got 3 months, so they make every day count. If you’re not part of an EF cohort, Matt shares two ways to bring this discipline and focus to your idea.
Be hypothesis driven
“Every startup is built on some belief about the world that is different to the status quo,” says Matt.
The next step is generating a hypothesis about how the world should be different based on your core belief:
If our belief is true, we have a hunch that the way to solve the problem is X or Y.
Before we go any further, it’s important to distinguish between a belief and a hunch. A belief is a values-based disposition about how the world ought to be. It’s hard to abandon a belief without changing the whole company.
A hunch you can abandon. It’s one way to think about how you could solve your problem. “It doesn’t matter if it turns out to be wrong because you can have multiple hunches,” says Matt. “The point of a hunch is to rapidly test it with evidence from customers and update it as necessary.”
Once you have a hunch about what you could build that would be valuable to customers, you have to start testing that hunch. “You might have a good hunch from day one. But the act of trying to prove or disprove it with evidence allows you to formulate a new hunch,” says Matt.
Talk to customers
“Spend a few days talking to customers. It’s the only way to find out whether you’re doing something valuable,” Matt says.
“Everyone overestimates how much they understand the problem and the customer. It’s not enough to say intuitively that this solves a problem for them. You must build an unbelievably rich understanding of your customer’s real context. Until you have that for 5 customers, I wouldn’t worry about anything else.”
It's crucial to double down on this if you're targeting enterprise customers, or you'll end up spinning your wheels. "When you're selling to bigger businesses, it's easy to believe that the person you're speaking to wants what you're selling. They say they'll buy it once you've built it," says Matt. "But do they have the authority to buy it? How does their organisation work? Where would this fit into their workflow? And what are the other changes that the organisation would need to make to adopt your product? That's the depth of understanding you need."
Be a missionary and a mercenary
In the past, conventional wisdom dictated that founders should be mercenaries who saw gaps in the market and exploited them to make money. In recent years, the pendulum swung in the opposite direction - founders should be missionaries, dedicated to pursuing their cause with the zeal to overcome the inevitable obstacles in their path on the way to building a generational company
In How to be a Founder, Matt and Alice challenge conventional wisdom by saying, "The best founders combine the zeal of a missionary and the agility of a mercenary."
"Founders who are missionaries without being a mercenary struggle," says Matt. "They can work on something for a long time without having a real sense of what the market wants. The problem with a mission without a market is that you could be a lone hermit in the desert for a long time."
It’s all about striking the right balance. “The key is to hold tight and not compromise on the mission–the why can’t change. But the reason to be a mercenary is the how might need to change.”