Let’s play a game. Let’s try to get really rich.
First thing we need is what is called a two-sided marketplace. Commonly this is thought of as a platform that connects buyers and sellers. Think how Amazon started — books and buyers. But there is a subtle hook.
If your platform has no sellers, then no buyers come. And if you have no buyers, then nobody is on the platform selling. In some way it is the classic chicken and the egg.
Venture investing is a two-sided marketplace. Like all marketplaces, the hardest part is picking from the available selections. Am I going with the trashy bestseller or the five-volume historic analysis of the Civil War?
Now let’s add in the factors of time and timing, the known and unknown and can I get a witness. Google just bought an Israeli 5-year-old startup, Wiz, for about $32 billion. The first investor, Shardul Shah of Index Ventures, in his own words, “kicked in” $3.5 million to get them started.
The Wiz story is wonderful, but there were some external moments that changed everything. The world woke up to the need for cybersecurity in the cloud after COVID in 2020. Wiz was standing on the platform when that train came rolling through. And it got on board.
And for Index, its return was 250x. Nice work if you can get it.
I am fascinated by things I can’t control. There are always factors that launch a startup, like a major customer who validates your product or a change in the regulatory world that destroys it. The startup game is tough because you can’t see around corners.
But this, in the quiet moments, in the honest moments, if the players will tell you the truth, every founder who has had the “monster successful exit” will it that somewhere along the path, they caught a lucky break, an unknown that could not be foreseen but that accelerated their company.
Venture scaling is not just about adding more money and people. It is also about finding a space in the universe with little or no friction, where driving exponential revenue and growth feels like skiing downhill in powder. A customer, a partner, an event in the world that just shows up.
Unfortunately, no cosmic map tells you where to find this intergalactic big bang boom. It is the wonderful, crazy randomness of this game that keeps the players on both sides continuing to go all in — one putting money in the slot machines, the other building the casinos. Both looking for the unfair advantage.
After all, on your way out the door, you can always throw in a dollar (used to be a quarter) and pull the lever.
I spend a lot of time “negotiating,” and I want to share some words of wisdom on that topic from Joshua Weiss, a co-founder of the Global Negotiation Initiative at Harvard University.
“The first step in learning from any kind of failure is to accept that it happened,” he writes in a recent Harvard Business Review article. When the contestant on the “Shark Tank” overplays their cards and gets an offer that is suddenly withdrawn due to a failure to consummate, what I love is the look on the face of the founder, the moment when he realizes it is over, Johnny. Goodbye. No second chance. The “you must be kidding moment.”
The next step, Weiss writes, is “To conduct a deep dive and analyze what happened and why.” The issue is often a mix of emotions, biases, misplaced objectives, unreasonable expectations — the list is endless. If you failed in getting the outcome you wanted, then hard introspection and ruthless self-examination is warranted. Then write it down, like an airline pilot checklist. Certain mistakes can often be fatal.
Weiss writes, “Consider what lessons apply to future negotiations.” That’s a nice idea, but beware, there might not be a future negotiation. Divorce is always suboptimal.
Weiss then hits the home run: “Pinpoint your weaknesses that contributed to the failure.” Your weaknesses, not the other guy. Yeah, I know the other guy was a jerk, but keep it simple stupid, you didn’t get the deal.
Finally, Weiss says, “Come back to the table with confidence.” This one requires the founder to consider very carefully. Confidence is not arrogance.
Rule No. 785: You had me at hello.
Senturia is a serial entrepreneur who invests in startups. Please email ideas to [email protected].
