I listened today to a founder explain his approach to building his second company. His first company failed because he couldn’t get any paying customers. His big takeaway was that what he built wasn’t what customers wanted. He had a hypothesis and built a solution based on it, not realizing that his hypothesis was just that, a hypothesis that needed to be proven correct or incorrect. He was trying to sell his solution, not find out whether his hypothesis was correct. After reflecting on his journey, he realized that the company failed because he wasn’t listening to what customers were telling him, which was that his hypothesis was incorrect.

This time he’s taking a different approach. He has a hypothesis, but he has recognized from day one that it may be wrong. Right or wrong, he’s focused on learning the why behind what people say. He built an MVP based on his hypothesis and has been getting feedback from customers. The feedback told him he was wrong in his initial thinking and helped him understand his customers’ pain better. He built the second version of his solution, which is resonating with customers because it solves a real pain point.

It took this founder a few years and a failed start-up to learn a valuable lesson. In the early days, focus on proving your hypothesis right or wrong. Have mental flexibility so you can see things from the customer’s perspective and be ready to go where customer feedback takes you. He learned this lesson the hard way but is now succeeding in his second act.

I love hearing company origin stories. It’s always interesting to hear what led someone to start a company. I’ve started asking for the origin stories of younger VC funds too. Emerging managers are founders too, and going from zero to one with a fund can be difficult. I love hearing why they made the leap. I recently heard a VC fund origin story that was different than any I’d heard before.

Venture capital and its outsize financial rewards have been known in areas like San Francisco for decades. A founder from another country was able to take his start-up public and reap a massive windfall for himself and his investors. This hometown story caught the attention of founders and investors in his native country, who wanted to know how they could support the next local founder who’d have breakout success.

A multifamily office in that country was repeatedly getting asked by the families it managed wealth for if it could find some early-stage investment opportunities. Its leaders realized there was no venture capital in the country and decided to start the first venture fund there. They settled on a hybrid strategy of investing in other venture capital funds and making direct investments in start-ups.

Fast forward a few years, and they’ve raised a few funds and had one of their seed-stage start-up investments go public. The fund managers are happy, as are the founders they backed and the limited partners who invested in their fund.

What an interesting origin story.

I watched an interview Robert Smith gave recently. He’s a billionaire and founder of Vista Equity Partners, a private equity firm focused on software companies. Robert was very open, sharing details of his childhood, his journey from engineer to investor, and his perspective on a variety of topics. He did a great job of explaining private equity, venture capital, and capitalization at different growth stages in a company’s life cycle in a way that many people can understand.

I’ve spent time thinking about the impact of knowledge gaps on a founder’s velocity. Robert shared his thinking about knowledge gaps and how filling them is core to his strategy at Vista. Here are a couple of things he said that stuck with me:

“You’re accelerating the corporate maturity of that business. It might take you 10 years to figure out what we’ve done 45 times already. Now I bring that intellectual property into the company.”

“You may not have figured out or may not figure out because you may not be in an environment or circle of people who have dealt with that before. That’s why the expertise we bring is often more valuable than the capital.”

Even though he’s a private equity investor, Robert is also a founder. He founded Vista over twenty years ago and built it to almost six hundred employees and almost $100 billion in assets under management. He was speaking from the unique perspective of both a founder and investor who’s had outsize success. I think it says a lot that he’s built an organization whose success is largely based on creating value by filling the knowledge and capital gaps of people running later-stage companies.

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I listened to some folks from a multifamily office explain how they help clients (wealthy families or family offices) invest in tech start-ups. It works like this: The client tells the multifamily office they want to invest in tech start-ups. The multifamily office then talks to various venture capital fund managers that match the client’s parameters (stage, sector, etc.). The multifamily office sends the fund docs to the client for review or sets up meetings between the fund manager and client. If the client likes the manager, they invest and hope to invest with them for a number of funds.

As I was listening to this, I thought about the various layers:

family > multifamily office > venture capital fund manager > start-up

This process to match a tech start-up with the capital from a family seeking to invest in start-ups is inefficient and highly relationship driven. This is just one example based on one conversation, but it’s a good example of the inefficiency endemic to matching capital and start-ups.

I had a conversation with a friend about sleep. She’s reading Why We Sleep: Unlocking the Power of Sleep and Dreams. I haven’t read the book, but I’ve heard good things about it over the years and have it on my to-read list. She shared some of the things she’s learned. The gist of it is that sleep is important to the body and mind (e.g., decision-making). The things we put in our body can affect the quality of our sleep, which has a ripple effect. Changing time zones frequently also isn’t ideal for the body’s circadian rhythms.

When I first started my company, I didn’t make sleep a priority. I pulled all-nighters, functioned on four or five hours of sleep a night, and traveled a lot. I usually felt bad mentally and physically but pushed through it. Over time, I realized that sleeping and taking care of my body are important because they boost my energy level and mental clarity. I embraced an exercise routine and targeted seven to eight hours of sleep. These changes helped me feel better mentally and physically, which no doubt benefited my company too. I now make sleep a priority and have even done research to learn more about the optimal sleep situation for my body.

Working a hundred hours a week and getting minimal sleep is glorified in the start-up world, but the reality is that that’s awful for you mentally and physically. Every so often, when you’re pushing to get something important completed, it makes sense . . . but week in, week out—no. It leads to founder burnout and can lead to a burnout culture where you churn through good people. Let me be clear: I’m not saying you shouldn’t work hard. Hard work is critical to founder success, but hard work doesn’t have to equate to not taking care of yourself. The human body isn’t meant to go without adequate sleep for long periods of time. If it does, that shows up in other ways. I don’t have data on this, but I suspect that people who live this kind of lifestyle for years have success professionally but pay for it with more health challenges than others their age.

People think founders are superhuman, but they aren’t. They’re human. They get only one body just like everyone else. They have to take care of themselves, and sleep is a big part of doing so.

I spent today working on a new idea. There were legal questions I couldn’t answer, so I looped in a lawyer. He helped me understand the legal nuances and potential challenges I should be aware of. I also learned that there are a variety of different ways to do what I’m trying to do. I can make it as complex as I want from day one. I made sure to ask what the least complex way to get this idea off the ground is.

Complexity adds time and money. When you’re trying to get something new off the ground, complexity is your enemy. You want to quickly get something out that works, and complexity slows you down. Now, I’m not saying you should put yourself in legal or moral jeopardy. You should always be on the right side of those things, but beyond that, you don’t need complexity to go from zero to one.

After consulting with a lawyer, I’m opting for minimal complexity and a quick start. Once things are launched and I have more data, I can add more complexity if I need to.

Markets are important. They have an outsize impact on a company’s trajectory. A small but growing market with the potential to be large is great. And rapidly growing markets can be good, but only absent cutthroat competition that erodes margins.

When founders are looking in established or growing markets, they should think about white space. In a market that isn’t new and that’s dominated by legacy companies, there may be a segment of the market that the incumbents aren’t worried about. It could be too small, perceived as having too-low margins, etc. Whatever the reason, the incumbents are happy to let smaller start-ups take the business. The flaw in the incumbents’ approach is the failure to realize what’s possible. Can this small white space become massive? Can a growing trend overtake and upend the legacy businesses? By the time the possibilities play out, it can be too late for the incumbents. The once-small start-up has become a force to be reckoned with, forever changing the industry and taking incumbent market share.

Scrappy founders who see a problem they’d like to solve in a market with incumbents shouldn’t let the thought of competing with incumbents immediately deter them. Instead, they should consider whether there’s a white space that could serve as a noncompetitive beachhead. If you find one of these in a great market, you may have found a great entrepreneurial opportunity.

This week I was talking with a founder friend who’s building a new organization. The organization has ambitious goals and is trying to do something that hasn’t been done before. We spent time talking about the team he needs to accomplish this. He feels like a few critical pieces are missing. We ultimately landed on these team-related things as being missing:

• Incentives – The organization has a clear mission and vision and a defined set of milestones, but the team has started to slip on achieving the milestones. I dug in and realized the team isn’t incentivized to achieve them. Said differently, the team isn’t aligned to mission. They get compensated regardless of performance. Recreating the compensation structure to include payouts based on achieving milestones will align and motivate everyone. It may also help attract high-caliber people for open roles on the team.
• GSD person – Many small but important things have slipped through the cracks. Sometimes they weren’t caught until it was too late, causing the team to miss milestones. My friend realizes he needs a GSD (get stuff done) person. This person is strategic enough to have high-level conversations but able to execute on high-priority strategic projects. They’re a generalist, meaning they can dive into any area and figure it out. They will report to the CEO and be given the authority to ruffle feathers in the name of getting stuff done.

When you’re trying to do something that hasn’t been done before, sometimes you don’t know what pieces you need, and you figure it out as you go along. It’s like building the plane while you’re flying it. My friend is doing exactly that with his team. I’m curious to see what he implements and whom he hires. I think these two changes will have a significant positive impact on his organization.

One of the things I like to learn about a founder is their origin story. How were they raised, and what were they doing in life that illuminated the problem their start-up is solving? Sounds simple, but the origin story can be a leading indicator. Today I listened to a few fund-of-fund investors critique an emerging venture capital fund’s pitch deck and give guidance about how emerging managers can best pitch limited partners (LPs).

A consistent piece of advice for all the funds of funds was that emerging managers should lead with their story. The pitch deck shouldn’t jump right into thesis, investment track record, or how much the manager is raising. It should start with background on the manager—what their journey has been and how led them to raise their own venture fund and come up with their investment thesis.

LPs are buying a portfolio of to-be-determined portfolios of investments. Ideally, they’d look at previous fund investments to gauge what a manager’s future portfolio of investments might look like. However, many emerging managers won’t have an investment track record. When that’s the case, LPs are investing in the managers. They want to get to know who the managers are, how they think, and why they are the way they are. Understanding what makes them tick will give LPs more comfort around the person they’re backing and the nonexistent portfolio they’re buying.

This feedback makes a lot of sense, and it was a reminder that emerging VC fund managers are basically founders. Telling an authentic, compelling story—as a manager or founder—can be the key to getting early believers on board.

I talked to a founder friend who’s been working on a project for over a year. Part of the project’s economic viability centers on reimbursement from a project sponsor organization. My friend has been keeping the project sponsor up to date and is in regular communication with them. The project is now in its final phase and should finalize before year-end. The last part is to be reimbursed and close everything out.

My friend just learned of staffing changes at the sponsor organization. The organization isn’t sure if it’s going to reimburse him (and others) as agreed because of lack of protocol adherence by the dismissed staffer. The staff change is out of his control, but it’s materially affecting him and the cash flow of his business. My friend is in a tough spot. He spent six figures of capital out of his company coffers (a significant amount for a company of its size) in anticipation of being reimbursed by a certain date. That won’t happen now, and the reimbursement might not ever come through.

When I talked to my friend, he was taking it in stride. He realizes the precarious situation he’s in and is actively trying to figure out how to resolve it. I noticed that he’s not letting the situation paralyze him—he’s taking whatever action he can in hopes of resolving it. My gut tells me that his action-focused approach will help him find an acceptable resolution to this sticky situation.

Part of being a founder is dealing with the unexpected. The key is to continue taking action to move toward the desired outcome, whatever curveballs come your way.