Lost and Founder

Rand Fishkin

I stumbled onto this book at such a good time in my life. I had no idea who Rand was before this book but now I feel like I know him intimately. I respect him. Rand has courage. Rand is the founder and former CEO of a business called Moz which specializes in search engine optimization and this book he gives new founders cheat codes he’s found starting his business. Along the way her shares some personal and professional stories which, I suspect, most people would not be willing to share so publicly.

Like most things in life, starting a business the first time is hard. Luckily for everyone who’s read Rand’s book, there are cheat codes. Shortcuts we can take to build a better business faster. Rand starts off his book with five cheat codes:

  • Raise prices and grandfather existing customers.
  • If you want to raise money from an investor, ask for help with your business. If you want an investor to help with your business, ask for money.
  • Founders should buy preferred shares in their own companies when raising money from investors.
  • When you’re gaming news aggregator sites like HackerNews to promote your product, make sure your friends who are upvoting your post live in different geographies.
  • Founders should recruit software engineers directly and not offload it to a recruiting agency.
  • Find a co-founder or two. Doing it alone is dangerous and scary.

Even with these shortcuts, founders should expect to fail. Over 90% of tech-based venture-backed startups fail to return their investors capital and half of those who reached year 4 still ended up dead. Building a business is hard. The statistics are overwhelmingly negative. Yet somehow, people keep trying.

The reality of being a CEO is different from what’s portrayed. The job of a CEO is managing people, holding people responsible, recruiting, dealing with customers and dealing with daily crises. Starting a software company means that you won’t be writing code for very long. Same goes for marketing or any other skill set. This often means that new CEOs don’t like their job because their passion lies in what they want to do day to day as opposed to what they want to accomplish. And that’s ok. If you want to write code all day you probably shouldn’t start a company. If you want to affect the world, then building a business is for you.

Companies take on the personalities of their founders. Rand gives examples of misogyny and Uber, logistics and Amazon and people management and inDinero. A founder who’s self aware of their weaknesses and strengths is at a massive advantage because they can fill their holes earlier in their entrepreneurial journey. Different founders find different parts of business building difficult. MBAs may find that building software is hard while software engineers may find marketing the most difficult part. It comes down to the relative strengths and weaknesses of the founder(s). There are three ways to deal with weaknesses:

  1. Learn the process and do it yourself
  2. Find cofounders who fill this gap
  3. Invest in building enough knowledge to hire talented people

Learning to do it yourself is time consuming and inefficient. Finding cofounders lets in a lot of risk because that founder leaving might be catastrophic. Learning just enough to hire effectively is probably the best tradeoff between the two. Any senior executive you hire to fill your gap should have an aptitude and bias to teaching. A CEO with a weak technical background needs a CTO to teach her so she can become a better CEO.

Venture capitalists go out and raise money from rich people (Limited Partners or LPs) promising a return of ~3x of 10 years. Then, venture capitalists invest this money in startups. Most of their investments fail but one or two will succeed and VCs needs these one or two to succeed big. Real big. This means that if your VC backed company is getting an offer to be bought which returns ~3x of investor capital, your investors won’t be happy. If you’re one of their good investments they need you to sell for 10x or more. Incentives quickly misalign if founders are ok with exiting before becoming a unicorn.

When you’re raising money from a VC who’s genuinely interested, make sure you ask to speak with CEOs of other companies they’ve backed. Often you’ll find candor and camaraderie in the entrepreneurial world. Rand found that many CEOs he contacted about a potential investor would speak negatively about their own VCs.

In the book Good to Great, Jim Collins look at what separates good companies from great ones. One of his findings is that good companies are filled with people who share the same fundamental beliefs. Not beliefs like Star Trek > Star Wars. Beliefs like transparency or frugality. When core beliefs aren’t shared by everyone in the company, every project and initiative is undermined. Values cannot be set but instead discovered. Values fail in organizations in three ways:

  • When they’re viewed as paper platitudes and not embodied
  • When those values are created to build a cult-like environment
  • When values are publicized and must be discovered by potential candidates and new hires

It’s important to share core values but a mistake to be homogenous. When you hire people because they prefer Star Trek over star wars you miss out crucial elements that diversity brings like empathy. Rand says (and I think Facebook has real data to back this up) that diversity is inherently good. When hiring, if you find two candidates who are equally talented, the more diverse one should be preferred. Diversity brings empathy, perspective and creativity.

Once organizations reach a certain size there needs to be a formal way for people to grow within the organization. If management is the only way to grow, the organization will suffer. Management is a unique skill set just like marketing or engineering. It’s important that there are management tracks and individual contributor tracks within the organization and that they be treated and compensated equally. The job of a manager isn’t to boss people around but to act as an efficient coordinator and communicator for the whole team.

Some research has been done which shows that psychological safety is the single greatest predictor of a successful company. This means that people don’t fear being ridiculed or blamed for mistakes. This means that people feel comfortable sharing personal details. This means that colleagues become friends. This means that tough times doesn’t mean bad times (or maybe the other way around?).

Rand’s final piece of advice can be summarized in a single word: focus. To get this point across he talks about at one point his company offered 8 different products. Each new one added took resources away from the others. Moz had gone from being a clear market leader to an average SEO company. Profitability was down and layoffs had to happen. Afterwards they cut some of their products and found that this newfound focus made them profitable again. Moz was spread too thin and did nothing well. As Ron Swanson says: “don’t half ass two things, whole ass one thing.”

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