Howdy GirdleyWorld! Today’s topic — 10 hard lessons I’ve learned from incubating a dozen businesses.
Over the last 10 years, I’ve started about a dozen companies.
My goal is never to run it myself – I want to find the right people, find the right idea, and grow it into a successful new business that doesn’t need me beyond a monthly board meeting.
Of the dozen I’ve started, some have gone great (e.g. Dura Software), while others kind of sucked (e.g. my failed Halloween costume store).
Along the way, I’ve learned some hard lessons about starting businesses. I’ll pass them along to you, so you don’t have to make the same mistakes!
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1. Nobody wants to work on my shitty ideas.
Early on, I thought I could get great people to believe in my ideas.
I was totally wrong. The only sure way to get someone bought in is to develop the idea with them.
Your partners have to talk to genuine customers, and personally experience the pain point you’re solving.
So if you want a partnership, don’t figure out your whole business plan first.
2. Recruit only at inflection points
It’s tempting to want to hire people on as soon as you can afford it.
But I’ve found only three windows work for me to recruit in:
- Before you have an idea: this is when you can find a cofounder
- After light product-market fit: this is when you can have a CEO buy in
- Scaling up after full product-market fit: this is where you should bring in an experienced operator.
3. Adverse selection is your biggest problem
The number one ask from people incubating companies is always the same:
“How do I hire an operator for my idea?”
They want senior folks who can move mountains. But that top 1% performer… just doesn’t need you. They’re in demand elsewhere, or they’re just not interested in executing someone else’s idea (see #1).
4. Find win-wins
Your co-founder/operator may want security, and you have capital.
Or maybe you’re a great salesperson, and they’re a great coder.
Make sure you both need each other, otherwise it’s not true partnership.
When I start a business, I bring knowledge, money, an audience, and an active board member (me!). So I look for people who are eager to dive into an idea and run a full-court press.
5. Find the “entrepreneur within”
Here’s the truth: most people will never be entrepreneurs.
And that’s fine! It’s not for everybody.
But some people have it in them, and just need a nudge in the right direction. That’s my ideal candidate for someone to work with.
Find them. Help them. Push them.
6. Start with trends
Lots of great business ideas come from trends. That way, your idea can ride a tailwind (that gives you momentum). Trying to buck a trend means you’re working against headwinds, which makes everything harder.
First, I find an obvious trend. Then I look for 2nd and 3rd order effects.
For example:
- 1st order: “Hiring in the US is hard.”
- 2nd order: “American companies want to hire overseas…”
- 3rd order: “They’ll need someone to help them.”
This seems obvious now, but it was still early days when my cofounders and I started Near based on this trend.
7. Play to your strengths
Just because a business idea is sexy doesn’t mean you’re the right person to make it happen.
Ask yourself:
- What am I the best in the world at?
- What is our team the best in the world at?
- What are our unair advantages?
I only started Scalepath because I already have street cred as a serial SMB owner.
8. Start with the end in mind
You don’t want to get an idea underway only to realize it’s not what you want to be doing with your time.
I keep a checklist now of the company types I want to incubate.
If the idea doesn’t meet my criteria, I’m out. Here’s mine:
9. Too much capital is a curse
I used to think that more money meant a better chance of winning.
But eventually I figured out a thin budget is much better.
After all, a real business only survives by its bank account. And having limited means forces you to tackle problems creatively, instead of just throwing good money after bad.
10. Kill your darlings
This is a great line from Stephen King.
If a company’s not working, it’s better to quit them ASAP. Companies finish as they start.
On the flip side, you can feel when things are really working. And it’s a great feeling.
Here’s to companies that work!
Have a great week!
Michael
P.S. If you’re keen on incubating companies, I wrote up my whole step-by-step method in a 40-page ebook. If you’re interested, check it out!
