By Daniel Wirjoprawiro
Venture capitalists are excited about backing startups that are impactful and scaleable but too often founders can be trapped in incremental thinking.
They direct their companies to be slightly better than the next competitor or make decisions for the short-term without consideration for the long-term dynamics that can make or break a startup.
It’s important for founders to articulate more than what their company currently does so that investors, talent, customers and other stakeholders can understand and align with the founder’s deeper personal values and get behind the company.
An overarching mission that describes why the company was founded and a vision that describes the impact the company will have in the future can make all the difference to an early-stage company.
Founders who articulate this coherently will attract aligned, strategic investors who back their long-term vision with conviction, engage a highly skilled, motivated and committed talent pool and create early-adopters who evangelise their product.
Founders trapped in incremental thinking often burn through capital inefficiently as they play catch up with competitors. They underestimate the macroeconomic threats to their business such as larger competitors gaining rapid economies of scale, players from overseas entering the market with a unique value proposition or changes in consumption preferences.
Founders need to study the economics and market in depth, understand the macroeconomic trends around competition and consumption behaviours and articulate the opportunity they are pursuing.
Focusing too much on the competition will also promote incremental thinking. Founders need to remember that the competition is executing their plans based on their own set of circumstances and contexts.
Founders should focus on their own mission, build their company from first principles and leverage the unique, little-known insights they have discovered. While this may be difficult with little precedent to draw upon, it’s more likely to lead to the creation of enduring competitive advantages for the company.
Founders are often entrenched in tight-knit startup communities and carefully selected media. While both can provide valuable sources of information, popular dogmas such as, the ‘Lean Startup’ can be misconstrued and the underlying principles behind the concepts lost or miscommunicated.
Founders should think critically and delve deeply into these concepts using their own context, and whenever possible, take insights from the source, firsthand. Focusing exclusively on concepts like iteration or failing fast could blur the founder’s long-term vision, devalue advantageous scaleable technology architecture, and skimp on quality, hurting the adoption of their product.
Venture capitalists want to back companies with unique insights that challenge the status quo. Their investment decisions are personal so founders should consider capital raising in the same way as a social movement. While the future may be uncertain, founders should focus on articulating why their company is best placed to get there, the path ahead including the risks and the scale and impact of their ambition.
By taking investors on the journey, founders can raise double what they immediately need and buy at least 18 months runway to give the company plenty of time to make mistakes and succeed.
Prior to funding, founders are sometimes scrappy and resourceful, validating their business with very little capital. Having funds in the bank can change this mindset, and they may get trapped into investing in a new office, making expensive new hires and other costs that give the illusion of progress.
Founders need to cautiously monitor their burn rate, be clear on the objectives for the next funding round and avoid expenditure that does not significantly progress the validation of their business.
Daniel Wirjoprawiro is Venture Partner at Trimantium Capital having traversed the spectrum of a full stack engineer, product manager to investment professional. You can follow him here.
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