This week I was discussing an upcoming capital raise with a founder. The company has pivoted, and its latest product is resonating with prospective B2B customers. These businesses have been searching for a solution to a problem, to no avail. This founder’s solution checks all their boxes. Prospects are converting to customers relatively quickly.

Things are looking good, and the founder wants to raise venture capital. His pitch is coming together, but we talked a lot about one part of it: the market. How many customers exist for his solution? I learned that his “known” market is material but not gigantic and not growing (as far as we could tell). There’s a clear path to building a company with seven-figure annual revenue. Beyond that, not so much.  

Markets matter a lot. It’s hard to build a big business in a small market—there just aren’t enough people willing to pay for the solution. It’s equally as hard in a static or shrinking market because companies grow by taking market share from other businesses—the market is cutthroat (and likely low margin).

Venture investors understand this dynamic and spend lots of time understanding the market a start-up is operating in before they invest. If the market won’t support a large company (now or in the future), the probability of an investment being profitable for the fund goes down drastically. If they can’t see the investment turning a large profit for the fund, they probably won’t invest.

Markets matter, and founders should understand their market and its potential. If a founder can’t articulate why a market will support a large company (or multiple companies) and how their solution will win in that market, they may not be able to raise venture capital.

You learn a lot about someone who wants to be an entrepreneur when times are tough. Especially when it’s possible they could run out of cash and have to shutter their company. It’s in tough times that great entrepreneurs separate themselves from everyone else. The great ones do their best work when their backs are against the wall. They turn desperation into a superpower. They make the impossible happen.

Over the next six or so months, we’ll see which cash-strapped founders can separate themselves by making the impossible happen.

I recently had the opportunity to speak to a group of early entrepreneurs about bootstrapping. One of these founders asked about execution when you’re bootstrapping—specifically, how to execute and move the business forward when you have limited resources and limited help.

My response was simple. Early-stage founders can’t do everything they’re thinking about, especially when they’re bootstrapping. They don’t have the finances and likely don’t have the manpower. Figure out what the most important next milestone is and what actions get you closer to it. Focus intensely on those actions. Don’t worry about the other stuff. Said differently, figure out the 20% of activities that will make 80% of the difference in getting you to your next milestone.

Focus is important when you’re an early-stage company. You have tons of balls in the air, and you’re adding more all the time. Many early-stage founders (myself included) try to keep juggling all those balls, but it’s just not possible. You don’t have enough hands. It’s better to figure out which of the balls matter most (given your stage). Keep the critical balls in the air and let the others drop (for now). 

Homing in on what’s most important is easier said than done, but it can be the difference between success and failure for early-stage companies (especially when they’re bootstrapped).

OnlyFans is a social media company that’s surged in popularity since the pandemic. The company has a less-than-stellar reputation because of the type of content creators post on the site. I’ve never used the site and don’t know a lot about it, but I read an article about the financials that caught my attention.

The parent company, Fenix International Limited, is based in the UK, so its financial statements are public. I looked at its latest financial report covering 2022 and noted the following:

• Creators on the platform grew 47% to 2.16 million
• Fans (i.e., users) on the platform grew 27% to 187.9 million
• $1.09 billion in total annual revenue
• ~67% of annual revenue is generated in the US
• ~48% of revenue is subscription
• ~52% of revenue is transactional (take rates from purchases)
• Net profit (after taxes) of ~37% or $403 million
• Dividend of $338 million paid in 2022
• Dividend of $310 million paid in 2021

Bloomberg says the company is owned by a single individual, to whom all dividends are paid.

Again, I don’t know anything about the platform and haven’t used it, but its financial performance is something to take note of. The revenue, net profit, and dividend figures surprised me.

I’ve been learning about successful entrepreneurs who happen to be investors—I call them “investor entrepreneurs.” I heard about Stanley Druckenmiller and have been learning about his journey as an investor.

Druckenmiller is a hedge fund manager, which I’m less familiar with. I’m still learning about that investing style and about hedge funds, but one thing has stood out to me from learning about Druckenmiller: there are many creative ways to deploy capital and achieve outsize returns. There’s no set path that all investors must follow. Some investors like to invest in what others might consider unorthodox ways, and they can still be successful. 

I’m excited to continue to learn more about Druckenmiller, his approach, and why he was successful. 

I’ve been chatting with several founders who put off raising in 2022 and earlier this year in hopes that fundraising conditions would improve. They’re now at the end of their runway—they must raise new capital. It’s a tough spot to be in, and I suspect it may be more common than not for early-stage founders who raised in 2020 or 2021. 

Summer vacation season is over, and public markets rebounded through July (August has been a down month so far). The optimal window before year end in which these founders can raise capital opens in September and closes around Thanksgiving. This two-and-a-half-month window could be make or break for many early-stage start-ups this year.

I’m curious to see how many early-stage founders begin fundraising in September and how the number of investments completed in this year’s window compares to last year.

I was chatting with a kid interested in entrepreneurship recently. He wants to start some sort of business and asked me where to begin. That’s a broad question, so I shared my story.

When I was a teenager, I was obsessed with fixing up cars and spent tons of time learning about it. What are the best parts? Who makes them? How do you buy them? How are they installed? I was more knowledgeable than most people. My friends ended up paying me to help them fix up their cars. And that morphed into a large business years later.

I ended by advising him to find a problem he’s obsessed with and keep feeding his obsession. Eventually, the obsession will lead to figuring out how to solve the problem. Others will think his obsession is odd at first. But once he masters the problem and solves it, they’ll think he’s a genius. They may even end up being his customers.

I recently watched COIN: A Founder’s Story. It’s a documentary about Coinbase CEO Brian Armstrong and his journey from software developer to CEO of a publicly traded company worth tens of billions of dollars.

Coinbase wasn’t a smooth ride. Its trajectory was far from up and to the right. The journey was full of twists, turns, and obstacles (many of which persist today). The documentary covers all of this. Some of it was new to me: specifically, how Coinbase found product–market fit, the tension between Armstrong and his cofounder Fred Ehrsam, and how Armstrong evolved as a leader as the company grew.

Anyone interested in hearing about the early days of Coinbase and Armstrong’s journey as a founder should check out the documentary here.

I’m friends with an entrepreneur running an automotive service business focused on consumers. He’s been at it several years and is thinking about possibly selling the business one day. He would need to grow revenue and increase margins to make it attractive for acquisition. He has various ideas about how to do this, but his current model creates obstacles:

• Consumers need his service only once every five to ten years, so he must acquire new customers every month.
• Consumers view his service as an expense (i.e., its cost exceeds its perceived value) and negotiate hard, which negatively impacts margins.
• Managing relationships with consumers is a constant pain point for his staff and requires that he run at elevated staff levels, reducing margins.
• Each consumer has a different car, which adds operational complexity to servicing vehicles and reduces throughput.

He recently shared an idea he’s experimenting with. The automotive service he offers is something fleet owners can use too. Instead of continuing to focus on consumers (B2C), he may switch to targeting businesses (B2B). Here’s what he learned from some customer discovery:

• Small fleet owners are growing in his area.
• Each vehicle in a fleet needs to be serviced annually, so he could expect monthly repeat business.
• Down vehicles reduce revenue, so fleet owners view his service as helping them generate revenue (i.e., its perceived value exceeds its cost), which positively impacts margins.
• Working with repeat fleet owners simplifies relationship management, reducing the burden on his team and making it possible to operate with a smaller team, thereby increasing margins.
• Fleet owners buy the same vehicles, which simplifies operations and increases throughput.

Through trial and error, this entrepreneur has learned a valuable lesson: why some businesses are better suited to focusing on other businesses (not consumers) as their core customers.

It’s early, but I suspect this entrepreneur will pivot his business from B2C to B2B and finally reach the scale and profitability that’s eluded him thus far.

This week, Atlanta-based LeaseQuery announced that it has acquired Stackshine. LeaseQuery is a software company that was started to help accounting teams accurately record lease obligations in their financial statements. It has since created additional solutions that simplify accounting. Stackshine is spend management software. It helps organizations detect and manage software subscription spend and usage organization-wide.

George Azih has built an amazing company with LeaseQuery. He’s one of the smartest entrepreneurs I know. He has an incredible founder story that includes bootstrapping the company to around eight figures in revenue before raising outside capital.

Congrats to George, the LeaseQuery team, and the Stackshine team! I can’t wait to see what’s next for LeaseQuery!