This week, I caught up with a founder who’s out of runway. He raised several million dollars from VCs to fund the company for four years. After several pivots, they found a product that customers love and are paying for. But they don’t have enough cash left to accelerate the search for enough customers to reach cash-flow breakeven. Investors aren’t willing to invest additional funds.

He shared with me his biggest learning from his four-year experience:

Bootstrap as long as possible before raising venture capital. Being low on funds forces you to be laser focused on problems customers are willing to pay to solve. After you build a solution and customers are paying for it, raise capital to scale it. Raising a ton of cash too early increases the risk of building nice-to-have solutions rather than solutions to truly painful problems. A nice-to-have is like a faulty foundation under your house. You’re constantly trying to fix it, but that’s hard to do because of all the stuff on top of it.

Every founder’s situation is different, but I do agree that too many resources too early can lead to a lack of focus. When resources constrain you, you’re forced to focus only on what truly matters and what customers will actually pay for. Focus fixes everything, and constraints force you to focus.

This week, I had a conversation with an entrepreneur who’s considering closing his business. The business breaks even or runs at a slight loss most months. When someone is considering closing a business, I wonder why, so I asked.

This entrepreneur has had his business for about a decade. He’s no longer excited by it and hates the thought of going back to being involved in its day-to-day operations. He’d rather spend his time on new entrepreneurial pursuits, which he’s already doing. This makes sense to me. Around the decade mark with my company, I began to lose enthusiasm and remove myself from certain aspects of the operations. I’ve heard other entrepreneurs share similar experiences.

Next, I wanted to understand the issue with the business. Why wasn’t it generating a profit? Operationally, it’s running smoothly with a small team. The work gets done as expected and customers are happy. But they’re not getting enough customers through the door to generate the revenue needed to turn a profit. I asked how they acquire customers and let customers know they exist. It turned out that the entrepreneur hasn’t done any marketing in a few years. He did big marketing pushes years ago, which were successful, and he’s been coasting on word of mouth ever since. But word of mouth is dwindling, and the result is fewer customers.

Marketing is just like other business functions, with one important difference. When you stop operations, you notice immediately because the work isn’t getting done and customers are mad. When you stop marketing, you often don’t see the impact right away. Awareness of your business gradually declines. Revenue gradually declines. One day, you realize you don’t have enough business.

I told this entrepreneur that it seems like he’s got a marketing issue. If he can dedicate himself to a few months of restarting his marketing function and incorporating metrics that quantify his return on marketing spend, he’ll likely see a profit again in a few months. Instead of closing the business, he’ll have a good shot at getting marketing running smoothly without him—just like the rest of the business—and then selling the business. Instead of getting nothing and walking away, he may be able to sell it, get a nice chunk of change, and pursue his new entrepreneurial ideas with a clear mind and capital to fund them.

Today I read an article (see here) about James Dyson’s annual dividend from the namesake company he founded decades ago. He reportedly owns 100% of the firm and received a 2024 dividend of $303 million (converted from British pounds). He received a $1.5 billion dividend in 2022, and over the last four years he’s received a total of roughly $5.39 billion. That’s an astonishing amount considering that he still owns his company, Dyson, outright, and that ownership is worth well over $10 billion.

I read Dyson’s autobiography last year (see here), so I know that his journey to building his company was anything but smooth. What stands out to me is that after all these years, he hasn’t sold it. He created and continues to own a valuable asset that generates substantial annual dividends, which he invests in diversified assets.

That’s very unlike today’s entrepreneurial culture, which celebrates exits (i.e., selling a company). When you look at the entrepreneurs who’ve created the most wealth for themselves, they didn’t exit. They built great companies that are wildly profitable, and they continue to hold significant stakes in them.

This week, I caught up with a founder from SF. He’s building an AI-based solution in the HR space. Several ideas he’s tried haven’t worked, but this one is gaining traction rapidly. He told me his failures made him reflect; he wondered what he was doing wrong compared to other founders.

He asked one of his old professors (he has a graduate degree in computer engineering from an Ivy League school) why he’s having a much harder time than his peers getting enterprise companies to try his solutions. The professor didn’t mince words; he told the founder he wasn’t leveraging his network. He was reaching out to large companies cold and getting the door slammed in his face left and right. No one would listen.

Armed with this new idea, the founder leveraged his school’s network to get warm intros. The results have been drastically different. Large companies are not only excitedly listening to his pitch, they’re trying his product as early users.

I asked the founder what his takeaway is from all this. He said he believes that getting decision-makers in large companies to try technology from start-ups requires warm intros, and to get warm intros you need a strong brand name or a good network.

If you’re a founder thinking about selling to a large company, consider who in your network can make a warm intro to decision-makers. If the answer is no one, ask yourself what you can do to build your network.

Today I met with another early-stage founder, and the topic of customer discovery came up. He said he’d done discovery, so I dug in and asked more questions. Two things stood out to me that we discussed in detail.

First, most of his customer discovery came from sending out surveys. (I shared my thoughts on surveys as customer discovery earlier this week—see here.) We discussed the benefits of doing more one-on-one conversations.

Second, a lot of his insights were based on a conversation he’d had with one customer. He’d built a lot of his product offering and website messaging in response to what he’d heard in this conversation. Learning from a conversation with a potential customer was a big plus. But one customer doesn’t confirm a pattern that leads to previously undiscovered insights.

Surveys are good, but not for initial discovery. Conversations are the best way to learn about pain that potential customers are experiencing. And you need lots of conversations with lots of people to uncover patterns and gain a deep understanding of problems and why they’re so painful.

This week I listened to the founding team of an early-stage startup describe their current traction. They’ve built a software product and have thousands of (nonpaying) users. To determine what features their customers would pay for, they sent them a survey. Twenty-five percent of the people who responded said they’d pay for a particular feature. So, the company built that feature and launched it recently. The results weren’t good. Only three (yes, three) customers bought it.

So, what went wrong?

The team surveyed customers; they didn’t talk to customers. Talking to customers involves picking up the phone or meeting a customer in person (one customer at a time is ideal). A conversation, if you aren’t leading them, will allow you to dive deeper into the customer’s thought process and experience. It’s iterative. You hear something you weren’t expecting (or didn’t know) and ask questions about it. That leads to something else you didn’t expect, and you ask more questions. The result of that loop is new insights about the customer’s problem. Do that with multiple customers, and you start to see a pattern. You now have a better understanding of the problem and how to solve it for the customer.  

What I described can’t be done with surveys. Surveys may have biased questions that don’t help you understand your customers. And they foreclose iterative interaction with your customers. Sure, they’re efficient and allow you to get a lot of feedback quickly, but the quality is often low, and it can lead you down the wrong path.

The lesson this early-stage team learned was to stop doing surveys of their users and start getting them on the phone. Conversations lead to insights. You can’t have a conversation in a survey.

This week, I listened to an entrepreneur who’s building a software platform that helps online clothing sellers manage businesses that sell mostly through social media platforms, such as Instagram. The thing that caught my attention was that the company is focused on micro SMB sellers, who make up the majority of this fast-growing market. The company is performing well and has generated over $1 million in revenue.

I’ve shared my thoughts on the micro SMB market before (see here). I think it’s a great market that’s overlooked because people don’t know how to find and convert super-small business owners into customers. There’s no proven playbook. My interaction this week with this entrepreneur further increased my bullishness about this market.

Companies are being built right now to serve this market, and they’ll be massive companies in the next five years. By the time people realize the market opportunity, these companies will be so far ahead and so critical to how the micro SMBs operate that it will be extremely difficult to compete with them.

Yesterday, I shared why I love what Andrew Carnegie said about why you should put all your eggs in one basket, which is counter to how most people think. It’s simple, but it’s far from easy to execute. And even if you execute it well, success isn’t guaranteed.

Picking the right basket to put all your eggs in is the hardest part of execution. Whether you’re founding a start-up or making a concentrated investment, this choice is critical. And you must have conviction in your decision so you can weather the inevitable ups and downs. Therefore, you can’t haphazardly pick something based on a whim. You must do the work to deeply understand each of your options. Doing the work often leads to what others might consider an obsession, but it’s what uncovers the insight that others miss—the insight that reduces your risk, tilts the probabilities in your favor, and helps you build the conviction needed to go all in.

Andrew Carnegie’s method isn’t something that everyone is suited for. Making that kind of decision and sticking with it to the end requires mental grit and toughness. But for people with the right mind-set, when it’s done well, it can lead to outsize results.

A friend reminded me of some wisdom attributed to Andrew Carnegie that I’ve always loved because it’s counter to what most people believe leads to outsize success or investing returns:

The way to become rich is to put all your eggs in one basket and then watch that basket.

Mark Twain famously said something in the same vein after hearing about Carnegie's remark (source).

This quote resonates with me because it’s what every wealthy person I know personally did. In either company building or investing, concentration (i.e., extreme focus) on one thing is what led to outsize success. If you focus on one thing, you’re more likely to know everything about it and be able to assess it better than others. You’re likely to spot what others have missed, which reduces risk and tilts the probabilities of success in your favor. When everyone else thinks the chance of success is 10%, you realize it’s 60%.

What I’ve also seen is that after someone has achieved outsize success, they embrace diversification as a means of preservation and reducing downside risk.

Said differently, concentration is for building outsize wealth (or a business), and diversification is for preserving that wealth (or that business).

An entrepreneur friend sold his software company a few years back for over $100 million. We caught up this week, and he updated me on his new company. It’s a non-tech company selling a simple, physical, paper-based product that’s small, light, and easy to manufacture. He started the company about eight months ago and is seeing explosive growth.

The market for this product isn’t sexy, he said, but it’s surprisingly massive. I realized that he’d found a market that’s not attracting the smartest entrepreneurs because the opportunity isn’t sexy and doesn’t attract much attention or publicity. Because of many entrepreneurs’ lack of awareness of this market, they don’t understand the full extent of the market opportunity. The result is that my friend is competing against old-school entrepreneurs who’ve been in the industry for decades and haven’t innovated at all because they haven’t needed to. My friend is running circles around them—so much so that he thinks this old-school industry is going to make him more money than his software company did.

My takeaway is that markets matter a lot, but equally important is understanding the competition in a market. If you can find an overlooked market that’s large, ripe for innovation, and full of players who innovate slowly or not at all, there’s likely pent-up demand for innovation. If you innovate and execute well, the pent-up demand will be unleashed and may slingshot your company to success.