A few years back I chatted with someone at a corporation about a company it had acquired but later divested (i.e., sold) for a loss. I asked why they sold it and was told that “the business looked great on the surface, but we later realized there wasn’t a path to profitability.” I recently read something about the company they divested. It never reached profitability and has since been sold again. A few years into ownership, the most recent owners couldn’t get it to profitability either and opted to sell it for a loss.

I’m not sure what’s in store for this company, but I imagine the day of reckoning is coming. A company exists to solve a problem in a way that’s profitable and creates value for shareholders (as well as for customers). Sure, for a while, you may be investing ahead of growth, which will make the company unprofitable, but the goal should always be profitability. If a company can’t provide its product or service in a profitable manner, it’s essentially subsidizing the cost of the solution to customers, which isn’t a sustainable long-term business model.

With all the talk about an economic slowdown, I spent a bit of time thinking about the great financial crisis. Lots of challenges around real estate that led to many people losing their jobs. Unemployment peaked at ten percent in October 2009. If we have another slowdown (hopefully we won’t), there’s a chance we’ll see layoffs again. In the tech industry, we already are (see here and here).

If we see more layoffs in the coming months, I think they could be the catalyst for something unexpected: the rise of solopreneurs. More people will opt to work for themselves, but instead of aiming to build a large company, they’ll choose to be a team of one.

Why? People value flexibility and control over their own destiny more than ever. They want work to fit into their life, not vice versa. Solopreneurship is a path that accomplishes this. People are starting to be more comfortable putting their own interests ahead of their employers’ (if they’re laid off, can you blame them?). They want a situation that aligns with their personal priorities.

Why would this accelerate now? COVID-19 has made working remotely commonplace. You can work from wherever you want, and most companies are comfortable with this. If there are layoffs, companies still want to get the work done, but without the overhead of full-time employees. High-quality contracts that can be dialed up and down as needed can be an attractive alternative.

I hope we don’t have an economic slowdown, but if we do, I think we’ll see Solopreneurship become a career path that many people embrace.

I had a great conversation with an entrepreneurial buddy yesterday. He built and sold his company and has opinions on business. We discussed knowledge gaps and how they affect people’s trajectories. If you don’t know how a space works, it’s hard to excel in it compared to others who do have that knowledge. For example, it’d be hard for me to be a great restaurateur because I know nothing about restaurants. I might have the necessary abilities, but that knowledge gap hinders me until it’s filled.

As we chatted about our journeys, we zeroed in on a trait we share. Throughout our journeys, we both prioritized learning. We realized we were behind (something I was embarrassed about), so we supercharged acquiring knowledge to fill the gaps. We read tons of books, went to seminars, sought out more experienced founders we could learn from, and did a host of other things.

As we expounded on this, we noted that our other successful founder friends had filled their gaps and ultimately accelerated their success by increasing the rate at which they learned. My buddy framed it well: the biggest throttle on your success is how fast you can improve yourself. Said differently, the faster you improve (and learn), the more successful you can become.

Warren Buffet reads 500 pages every day and is one of the most successful investors of all time. Not only did he fill any gaps he had by turbocharging his learning, that knowledge compounded over time and led him to outsize success. He left his peers in the dust.  

Having knowledge gaps isn’t a great starting position, but they don’t mean you can’t be successful. If you want to make up for that disadvantage, improve the rate at which you acquire knowledge and how consistently you do so. It’s something you have complete control over, and anyone can do it. Stick with it long enough and you’ll not only make up ground on your peers, you’ll leave them in the dust.

I met with an impressive founder who turned his love for music into a thriving business. He noticed that the genre he’s passionate about wasn’t being given proper credit from a business perspective. The innovation and strategies that helped catapult the genre into greater public awareness and change the landscape of music weren’t being reported on. So, he created a media company that does just that. He’s been able to attract the top names in the genre—artists, music executives, founders, and others. They talk about their journeys and the strategies they’ve used to achieve outsize success in the genre.

I really like this founder’s approach to entrepreneurship. He saw an overlooked niche that aligned with his passion. He figured out a business model and was able to go full-time on the business a year after founding it. I’m excited to follow his journey and have no doubt he’s well on his way to building something massive.

Elon Musk gave an interview at a conference yesterday. A few friends who attended the conference texted me to suggest that I check out the interview replay. The interview touched on many topics, but the part about the macro environment for founders was most interesting to me. Here are a few takeaways:

• Fundraising environment – Elon pointed out that things can change quickly. He shared his experience raising for PayPal. They raised $100 million in March 2000 when fundraising was easy—so much so that people wired them money without PayPal agreeing to take the investment or even seeing a term sheet. A month later, good companies couldn’t raise money.
• Have capital – Have money in the bank so you have the runway you need to execute against your strategy.
• Recessions aren’t all bad – If times are too good for too long, the result is misallocation of capital. Ideas that aren’t that great get funded. Because subpar ideas get funded, human capital is misallocated: people are working on things that aren’t useful to society.  
• Watch your cash flow – Be aware of your cash position and how much is coming in and going out. Get to positive cash flow as soon as you can.
• Tough times pass – Hard times don’t last. They will pass, and boom times will return.

Regardless of your opinion of Elon as a person, he’s a credible founder who’s built great companies many times. His views on navigating challenging times are worth considering.

Today I had a chat with an emerging venture capital investor who’s raising his first fund. He shared the journey with me, and it didn’t sound that different from a start-up founder’s fundraising journey. He worked to refine his story and pitch potential limited partners (LPs) to invest in his fund. He’s heard more noes than he can count but pushed through until he heard yes.

The fundraise has been a grueling multiyear journey for him and his partner. It’s finally coming to an end (for fund one at least). I asked him what his big takeaways are. He has quite a few, but two stood out to me:

• Knowledge gap – Just as founders don’t understand the VC landscape when raising for the first time, neither did he. It took him months to learn that each LP is different and looking for something different in the fund investments they make. After he filled his gap, he adjusted his outreach strategy.
• Timeline – Their raise process initially was open-ended, with no timelines. Potential LPs were slow to commit or decline. He and his partner were in limbo, and so was the overall fundraise process. Once they established a timeline and asked people if they could respect it, they got clarity on who was serious.

This emerging manager and his partner hustled their way to raising a $50+ million first fund. He’s now focused on building out the team and infrastructure to support the operation of his fund. I walked away from today’s call thinking of him as more founder than investor.

A friend in VC sent me a video this morning and suggested I watch it. It’s a Craft Ventures presentation on how founders should operate during a downturn. David Sacks and Jeff Fluhr do a great job of articulating their perspective on what’s happening in the public markets, how it will affect the venture ecosystem, how it compares to previous downturns, and what founders can do about it.

Lots of takeaways from this presentation are helpful to founders, but Jeff’s glass-half-full perspective stood out. Times may get tougher, but great companies are built during downturns (Salesforce, Airbnb, Amazon, etc.). Capital may become harder (not impossible) to come by, but other things become easier: hiring, customer-acquisition costs, the ability to course-correct with less scrutiny, etc.

Jeff ends on this point: “The world will keep spinning.” I totally agree. If you’re an early-stage founder, focus on things you can control (Jeff shares metrics that founders should watch closely), not the macro environment. Even in a downturn, there’s still demand for solutions that solve problems and create value for customers.

Over the past month, I’ve talked to four founders who are looking to hire CEOs to run their companies or who’ve already done it. Two are early-stage; two, later-stage and more mature. This isn’t abnormal. Lots of founders transition away from being the CEO for one reason or another in the company’s life cycle. Some founders even come back and reassume the role.

The early-stage founders’ thoughts around this really struck me. They described hiring a CEO as if they were hiring any other employee. I don’t think they fully understand how hard it is to find the right CEO for an early-stage company and set them up to succeed.

Hiring a CEO for a mature company makes lots of sense. Product–market fit has been achieved. The team is stable. Processes are established. There’s historical data to help inform future decisions. The machine is already built. It may need tuning, but it’s there and working.

Hiring a CEO for an early-stage company is a different story. The pieces to the machine are scattered all over the place, and the new CEO must figure out how to assemble it. It can be done, and it has been done, but it’s harder. Trying to find product–market fit can be challenging if you’re not passionate about the problem or don’t have deep experience in the space. CEOs are the glue holding small companies together, which is hard to do if you didn’t write the blueprint or understand how all the parts work together. There’s usually little historical data, so decision-making can be harder for a non-founder CEO. Most founder CEOs don’t leave in the early innings because everything is going well. Cleaning up someone else’s mistakes is a tight spot to be in.

If you’re an early-stage founder, be mindful of these and other variables if you try to replace yourself.

Someone once asked me what I would change most about my experience in corporate America. I don’t have any regrets, but that question got me thinking. I told them I would be crystal clear about what I wanted to gain from my experience before I started working. I’d then push aggressively (and unapologetically) for opportunities to work on projects or work with people that helped me achieve that goal. Said another way, I’d be clear on what I want beforehand and to be directionally accurate during my time there. I didn’t do that and still got a lot from my experience, but I could have gotten a lot more.

It's hard to do, but if you can be clear on where you’re trying to go (or at least the direction) it has a big impact on your journey. It helps you be able to better evaluate opportunities (does this get me closer or further away from X) and makes it easier for others to help you. The end result is that you’ll likely end up where you want to be in significantly less time.

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One of the exit strategies early-stage founders often have is strategic acquisition. This means the acquiring company will get strategic value from the company it acquires—it’s not just a financial buy. Buying a company and bringing its talent onboard is often quicker than building something from scratch. And in some acquisitions, a larger company quickly grows the smaller company’s sales by using its massive sales force to offer the latter’s product to its existing customer base.

These options sound great, and they are—but there’s something lots of founders don’t consider. Often these deals are structured so the founder will need to stay at the larger company for a few years. The founder usually has what’s called an earnout—they don’t get all their money from the deal when it closes; they must earn it over time. Doesn’t sound like a big deal, but it can be. Especially If your motivation for starting a company was to be your own boss.

If you’re a founder aiming for a strategic acquisition, get a great deal attorney and be ready to hang around for a few years post close!