Beat the Odds

One of the reasons entrepreneurs seek out VCs, is that some VCs can put a thumb on the scale that determines whether a company will be successful.  Often this assistance is not in just a monetary form, but in the form of reputation, or relationships.  I find more often than not that this value add is in the form of solid advice.  VCBall is, in many ways, my attempt to pass on some of that general advice or perspective I might have to beat the odds. 

Well, I found a book that made my summer.  This last month I have had a real hard time not blabbering on about this book, Blueprint to a Billion, to virtually everyone I had a sitdown meeting with.   The book is about something that most VCs and  entrepreneurs think about a great deal: how do I beat the 1 in 20,000 odds that my company or the company I am considering joining or investing in will scale to $1B in sales in 5 to 7 years? 

The book's author, David Thomson, has researched this question through financial analysis, as well as through structured interviews, that if a company did not have ONE of "Seven Essential" traits, it'd take 14 years to hit a billion in revenues, vs 7 years that a billion dollar company would take on average if it had all 7 traits.  And if a company failed to have TWO of these 7 traits then the likelihood of scaling to a billion in revenues fell to non existent.   

So listen up, here are 7 general themes that Thomson feels are "essential" to beat the odds and scale your company to a Billion in 7 years (or ever):

1/ Find or create a great value proposition.  It's hard to grow quick if you don't generate a ton of value; while companies that aspire to be big and get there quickly often are hard-pressed to succinctly explain and quantify that value proposition. 

2/ Find a quickly growing market.  Rapidly growing markets (100%+) tend to be much more forgiving of mistakes than slower growing ones.  Obvious, but again, often overlooked, and statistically addressed in the book.

3/ Get some marquee customers.  Having big customers help you figure out your business model is a smart move.  Often, entrepreneurs and their backers fail to listen to what the marquee customers say, assuming they even have them. Most in my experience, simply fail to aspire to have them, and don't make it a strategic goal to get one.

4/ Leverage a "Big Brother" Partner.   As I get more experienced this one rings like a gong.  Without a big corporate partner than benefits greatly from your success, scaling to a Billion from one off singles and PRware (meaningless partnership announcements) is tough.  Again, it's about making this a strategic goal vs a "nice to have".

5/ Be capital efficient.  It's a myth that you need to spend lots and lots of money to build a Billion dollar business.  Most companies are self-funding after a certain point (typically around $25M in annual revenues per the author), and they have high margins early on that are sustainable, and they don't consume that much cash to get there.  So you need to be very efficient acquiring customers and making sure on a unit basis they are profitable (excluding your beta or pilot customers of course).  That means you need a good internal person to make sure you control expenses while growing, which gets us to:

6/ Paired management teams.  The myth of the all knowing, all powerful Oz-like superman founder is just that: a myth.   You need both an external CEO that focuses on the vision, product, marketing, and sales and an internal CEO/COO that focuses on delivering on that vision profitably.  If you don't have one or the other get one, or you're likely never to get to a billion. 

7/ Have at least one board member on your board, outside of your investor or management team (althought that helps!) that has grown a company to a billion.  Boards that are dominated by management and investors don't grow to a billion.  Boards that have a couple CEOs, that have grown their own companies to a billion, do.  So get a couple of those experienced CEOs, or as close as you can get, if you plan to grow to a billion.  Sounds pretty simply, but it's shocking that few entrepreneurs and investors have them on their boards. 

While a lot of stuff I was cognizant of, and see in my portfolio companies, sometimes it is a tough job to convince managers and other investors of these critical 7 elements.    With this book, it's at least a starting point of the discussion.  Recently, it's made me a bit bolder in pressing these points.  It's one of the first times in a book, or in any media for that matter, I've seen any real attempt at analysis on the subject of growing companies in a rigourous and analystical way.  (Please comment below if you have some other recommendations!).  I could blog for the rest of the year on these themes, and plan to, but in the meantime, I'd grab or download the book ASAP.   Even if you are not thinking about growing a company quickly, the applications for people in investing, business development, government policy, merger and acquisitions and job searching are very very significant I think.

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P.S. I am such a nut about the book, the author, David Thomson called me two Fridays ago, after hearing that I raved about this book to a close friend of his.   I asked him what motivated him to write the book.  And he told me he had several offers to runs some startups that subsequently failed;  David was so pissed off that the risks involved for a late 40 year old were so high (in his mind), that he wanted to reverse engineer how he could tell when a company had a higher probability to scale to $1B in 5-7 years.  He spent 3 years researching this topic, and as far as I know, is the only person to attempt to systemically determine what key traits a startup needs to stand a chance to scale to a billion exponentially.  Leave it to an obsessed, pissed off entrepreneur to try to change the world!  If you read this far and are still interested, email me, and I'll forward the first chapter to you (when I have the time) which Dave send to me to distribute. go to his site and download the first chapter. I asked him to put a link up, no luck so far, and I dare not do that myself!