This week I listened to an entrepreneur explain an interesting situation with a large pilot customer. He’d had a six-month contract for a paid pilot with a large company. The idea was for the company to test his software and then agree to a longer-term contract. Because of internal dynamics at the large company, the pilot ended without a new contract being signed. So, the entrepreneur disabled the customer’s access to his software platform.

An interesting thing happened. The company reached out and asked if they could still access the platform while they worked toward another contract (which was expected to take several more months). Said differently, they wanted access to the platform again even though a new contract hadn’t been agreed upon and they weren’t paying the entrepreneur. The entrepreneur was in a tough spot because he didn’t want to say no and jeopardize ongoing contract negotiations. But he didn’t want to get the large company used to accessing his software for free either. He wasn’t sure whether to grant them access as a good-faith effort or to ask for advance payment.  

While this situation didn’t feel great to the entrepreneur, I viewed it as an overall positive that showed his software is valuable to this large customer. A classic product–market fit question is “What would you do if this service or product went away?” If the customer is unbothered, then you know the solution is a nice-to-have; they can live without it. You either don’t have product–market fit or the problem you’re solving isn’t painful enough to the customer. Neither is a positive sign. If the customer is worried about it going away, that’s a great sign that the solution solves a serious pain point and is a must-have for them. A very strong signal.

This founder’s situation went a step further. When he disabled access, his large customer requested that it be restored. To me, this is a sign that his software is solving a serious pain point for that customer. They’d grown used to his solution, and when it was removed, the pain was real and they realized how much they needed it. The sequence of events that led to this wasn’t ideal. Rolling the pilot into a new long-term contract without service disruption would have been ideal. But if I had to bet, I’d say this customer will end up agreeing to a longer-term contract with this entrepreneur.

I’ve been coaching a friend as she launches a new business. She used an AI website builder to create a fairly complex e-commerce website. The site is live and she’s open for business—a huge milestone. Now she’s tackling her next problem: how to make people aware of this new business.

It’s a classic dilemma. Some entrepreneurs have a field-of-dreams mentality: If you launch a business, customers will automatically come. The reality can be more discouraging. Building a new company or product is hard and forces you to learn new things. But the journey isn’t over when you check that box. Quite the opposite—the journey’s just beginning. You’ve finished a segment of it, and another one that you’re likely equally unfamiliar with awaits you.

Finding those early customers isn't easy, but it’s something you must figure out. If you don’t, you have no business. I’m excited for my friend as she embarks on the next part of her journey. I’m not sure how she’ll find early customers, but I’m pretty confident that she’ll figure it out and gain valuable insights as she does.

Last week I shared that I’ve been riding shotgun with a VC-backed founder to help him sell his company. The deal was in the final stages of closing last week. It closed on time late last week, but there was a hiccup. The buyer attempted to send the funds to the seller, but he made an error. The seller had provided bank wire instructions, but the buyer sent an ACH transfer based on the bank wire details. Wire transfers and ACH transfers use different types of routing information, so the funds never reach the seller.

The deal technically closed, but this issue delayed the transfer of assets to the buyer. The seller wanted the funds before he transferred the assets—rightly so.

The ACH transfer was returned to the buyer by the bank when it realized that no recipient matched the information provided. The buyer re-sent the funds, and they arrived in the middle of this past week. The transfer of assets was also completed this past week.

I always tell founders that the deal isn’t done until the wire (or ACH) clears your bank. Until then, keep pushing, because things can and do go wrong.

Congrats to this founder for closing the deal and finally getting his funds . . . even if they were a little late.

I shared earlier this week that I’m reading The Success Equation by Michael J. Mauboussin. It outlines a framework for assessing the influence of skill and luck on your decisions (many life outcomes are a combination of both) so you can increase the chances of getting a successful outcome. It’s a good book about improving your decision-making by understanding the impact of luck and skill on successful (and unsuccessful) outcomes.

As I’ve said many times, books are a great way to find other books. One of the key concepts Mauboussin discusses is that to improve your skill in activities where luck has a greater influence than skill, you must focus on the process used to make decisions. The idea is that good decisions can result in outcomes we don’t want because of the influence of luck. And vice versa: a bad decision can lead to a good outcome because you got lucky. Therefore, a decision can’t be judged by its outcome; it must be judged by the quality of the process and analysis used to make it. He goes into more detail, but that’s the gist. I agree with this.

One of the things he suggested using, because they’re effective tools to improve decision-making processes, is checklists. Charlie Munger said the same thing in Poor Charlie’s Almanack (see here). Mauboussin told the story of a doctor who used checklists to significantly reduce hospital infections and realized how powerful they are. He wrote a book about checklists and how to use them effectively called The Checklist Manifesto.

Munger and Mauboussin can’t both be wrong about checklists. I use them some already, and I want to embrace them for material decisions, especially those that involve luck. I’m going to get a copy of The Checklist Manifesto and give it a read so I can lean into what Munger and Mauboussin have both said.

I’m reading a book this week about understanding the impact of luck and skill on successful (and unsuccessful) outcomes. It’s called The Success Equation, and it’s by Michael J. Mauboussin. It outlines a framework for assessing the influence of skill and luck on your decisions (many life outcomes are a combination of both) so you can increase the chances of getting a successful outcome. Very interesting book so far.

One section is called “Why Smart People Do Dumb Things.” I’ve been thinking about it a lot today. The key premise of this section is that intelligence tests measure some cognitive abilities but fail to measure others. One area these tests miss is decision-making ability. Smart people sometimes make stupid decisions.

The book goes on to distinguish between intelligence and rationality. Most would think they’re related, but this isn’t necessarily true, the book argues. There are two ways to evaluate someone’s cognitive ability:

• Intelligence quotient (IQ) – This is what traditional intelligence tests measure. It’s a rating of someone’s ability adjusted for their age and compared to the rest of the population. Think mental processing speed, memory, vocabulary, etc.
• Rationality quotient (RQ) – This is the ability to think and behave rationally. RQ attributes include “adaptive behavioral acts, judicious decision making, efficient behavioral regulation, sensible goal prioritization, reflectivity, and the proper calibration of evidence.” This is what interests me most.

The book highlights that many people with high IQs cannot act or think rationally and gives examples.

This section resonated with me for a few reasons. First, if decision-making is what matters most in life, then RQ is most important. IQ can’t be changed (as far as I know), but anyone can learn to act and think rationally through hard work and focus. So, if you didn’t win the ovarian lottery and don’t have a rocket-scientist IQ (I fall into this category), you can still have outsize success if you’re intentional about thinking and acting rationally. It’s not easy and takes work—e.g., I read this book—but I feel it’s definitely something that be learned and improved materially.

Second, this section mirrored something Warren Buffett said (I read it in The Warren Buffett Way last year). I wrote a post on the quote; see here. The gist is that rational behavior is what enabled Warren Buffett to achieve outsize success, not his IQ (which is very high, too). It’s not how smart you are, but how effectively you use the intelligence you have. Buffett says some smart people have a 400-horsepower brain but only get 100-horsepower output from it because of the decisions they make. He argues that by being rational, you can have a 200-horsepower brain and get 200-horsepower of output, which puts you ahead of the 400-horsepower “genius” who can’t act rationally.

When two wise people say the same thing, it catches my attention because they reached the same conclusion independently. The probability that both are wrong is low.

I’m excited to finish reading this book. Understanding IQ and RQ, and recognizing when luck heavily influences what I’m doing, has already changed some of my thinking and decision-making.

I’ve been writing this week about riding shotgun with a founder as he sells his VC-backed start-up. A new topic that came up today, the closing day, was transferring the money. How this is handled depends on the size of the deal. If it’s big enough, lawyers handle the transfer of funds to owners and investors. But if it’s a smaller deal, how the funds are transferred can impact the ability to close.

If the transfer is made via ACH, the funds aren’t available immediately. ACH transfers are processed in batches, and it can take from one to three days for the money to be posted in the buyer’s account. This can create issues if the closing is on a specific date. Also, ACH transfers can easily be canceled, which could cause an issue if the buyer is given possession of the assets before the seller receives the funds. ACH transfers are often free or relatively cheap.

Wire transfers are different because funds are transferred immediately. Each wire transfer is processed individually. Once the buyer initiates the wire, the funds are often received within minutes. Wires are often used to close transactions that involve closing dates and the transfer of ownership via paperwork, such as real estate deals. And not only are wire transfers faster, they can’t be easily canceled. Once a wire has been submitted for processing, you can’t easily recall the funds. Wires usually cost more than ACHs.

If you’re selling a company, ideally, you want to receive funds via wire transfer. It eliminates the waiting period, which can seem like an eternity when you’re selling a company. It costs a few more dollars, but it’s often worth it.

Continuing on posts from earlier this week (see here), I’m still riding shotgun for the founder of a company who raised VC funding while negotiating a sale. Most things have been agreed upon, with a noncompete agreement still outstanding. A noncompete is just what it sounds like, a contract that prevents a former employee from working for a competitor or starting a similar business for a specific period—and sometimes within a defined geographic area.

It makes sense for a buyer to ask for a noncompete. You don’t want to purchase something and then see the seller start a competing company that reduces the value of the one you bought. Warren Buffett learned this lesson the hard way with Rose Blumkin (see here).

The downside is that it’s a legally enforceable agreement. Translation: you can be sued for breaching it. From a seller’s perspective, not having a noncompete is ideal but unrealistic in many instances. If a seller has to sign a noncompete, good strategies are to make sure it defines competition as specifically and narrowly as possible and covers as short a period of time as possible. The goal is to reduce the risk of breaching and being sued. Broadly defined (or undefined) competition is risky because it doesn’t set clear expectations for the buyer and seller, opening the door to disputes down the road. And the longer the agreement period, the longer the founder is limited in what new ideas he or she can pursue.

Noncompetes make sense, but founders should aim to use them to set crystal clear expectations. Murky expectations can lead to avoidable disputes down the road, which isn’t good for anyone.

I’ve been trying to convince two friends to start businesses related to their professional training. Neither was interested for over a year due to the startup costs and the effort required to build a proper website (neither of them is technical). But recently, one friend decided to give it a shot. We met a few weeks ago, and she didn’t know where to start. The idea of starting a company seemed daunting and overwhelming. I suggested she create a simple website and see if she could get a handful of customers. Baby steps.

I told her not to waste money hiring someone to build a site. Instead, she should use an AI tool to create the first version of her site. These tools allow her to test her idea with zero upfront money—just time and energy. She wasn’t aware these tools existed but was curious to try them out (mainly because it was so much cheaper than hiring a developer).

Fast forward a week, and she’d completed the first draft of her site using an AI tool. She was surprised by what she was able to do with the tool in such a short period. She no longer felt overwhelmed or unsure where to start; she was motivated and energized. The tool lit a fire in her belly and gave her confidence. My other friend looked at her site, and it motivated him to launch a site using the same tool. Fast forward to today, and her site is done and launching. She’s got a few early customers lined up and is excited to test her concept. She’s incorporated her business and feels like she could really be an entrepreneur.

Watching my friends’ experiences has helped me understand the power of AI website builders like Lovable and the impact they can have on non-technical, early-stage entrepreneurs. The ability to take an idea and turn it into a product without hiring a developer or spending much money is so powerful. The need to hire someone technical or understand technical details has been a significant obstacle for many founders pursuing ideas. These tools remove that obstacle and allow non-technical founders to hack away and create whatever they have in mind. When more non-technical people who are considering entrepreneurship become comfortable with these tools, the number of entrepreneurs—and the pace of simple products coming to market—will increase.

I should note that tools like Lovable aren’t perfect. Any developer will tell you that there can be issues (scalability, security, etc.) with apps created by non-technical people using these tools. I agree with that. If someone can validate market demand using a Lovable-built website, it will likely need to be enhanced to meet the demands of a steady stream of paying customers. But that’s a high-class problem. In my opinion, these tools are great for testing an idea at low cost and low risk to validate if it’s worth pursuing.

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Continuing yesterday’s post, I’m still riding shotgun for the founder of a company that raised VC funding as he negotiates selling his company.

Competition usually leads to higher prices. It’s the law of supply and demand. If supply is fixed (or limited) and demand increases, pricing usually increases too.

When a term sheet or letter of intent (LOI) is presented to the selling company, an exclusivity clause may be included. This usually means the seller can’t negotiate with another party until a defined date has passed. This clause comes in many flavors, but you get the gist.

The upside may be that the seller is serious and wants to complete the deal quickly, so it wants both sides to be fully focused on closing. The downside is that the seller may not be fully committed or may not have secured the funds to close the sale, and the clause gives it time so it doesn’t have to worry about the deal being snatched from under it. The clause also reduces the likelihood that the deal price will increase due to a competing bid from another suitor.

Exclusivity clauses show up in lots of other types of contracts and agreements, too. Still, it’s a clause that entrepreneurs should be aware of and discuss with their legal counsel before signing an LOI.

I’m riding shotgun for the founder of a VC-backed company as he sells his company. The process has been fun, tons of work, and highly educational. Selling a VC-backed company is different than selling a non-VC-backed company. The cap table is more complex, and many rights related to the sale of a company are embedded in the terms of VC-led fundraising rounds. Because of this complexity, more review is needed to make sure everything is in order. Cue the lawyers.

A big takeaway is that legal fees can be a material percentage of deal size, regardless of the size of the deal. As one lawyer put it, M&A legal fees don’t scale down well unless the buyer is willing to accept potentially material risks—IP isn’t cleanly owned, liens exist, pending litigation, etc. It’s not uncommon for each side to get a $30k–$50k bill for a small deal (think more than $100k but less than $500k). Deals over $1 million can involve legal fees for each side that easily exceed $100k.