Some founders take the approach of shielding their teams from the realities their start-up faces. They want the team focused on building a great solution and serving customers. I caught up with an early-stage founder who recently updated his small team on strategic direction and the state of the company during a team meeting. He decided to leave their current runway out of his update because he didn’t want them to worry.

They didn’t let that slide, though. One of the first questions was how much runway they had to execute what they’d just heard. Having been asked, the founder answered candidly: four or five months to make it happen.

The founder wasn’t sure how the team would respond to such a short runway. He assumed some would worry. Their responses surprised him:

• “Thank you for being transparent.”
• “I was giving 100%, but now I’m going to give 120%.”
• “I did the calculation on my equity, and if this works like we think it will, I’ll make a lot of money, so I’m going to do all I can to make it work.”

This founder learned that he doesn’t have to shield his team from the unpleasant realities of working at a start-up. People don’t expect everything to be roses. They know start-ups will have ups and downs. They want to be kept in the loop, good or bad. Sometimes, sharing the bad can energize the team to push harder to make the impossible happen.

Over the past few months, I’ve listened to a few early-stage founders pitch marketplace start-ups. Their pitch begins with a focus on connecting buyers and sellers. During the pitch they also say they have tools to help sellers, who are small businesses, manage their operations. They’re building marketplaces with workflow management embedded in V1 of their solutions.

This approach gives me pause because I struggle to understand the core problem they’re solving. Are they solving the inability of buyers and sellers to connect? Or are they helping small sellers manage their business operations?

Many of these founders point to large marketplaces (Airbnb, Etsy, etc.) as having inspired them. These mature marketplaces offer workflow management tools to sellers, so the early-stage founders believe they should build these features too. But mature marketplaces didn’t offer workflow management to sellers from the get-go. They solved their core problem (connecting buyers and sellers) first. After they achieved product–market fit and looked at scaling the platform, they added workflow management features. If they had done both at the same time, I’m not sure they would have had the same level of success.

Building a marketplace and achieving product–market fit is really hard. Getting the supply and demand dynamics to work is no small task. Early-stage founders should be crystal clear on the core problem they’re solving and allocate resources to build the best possible solution to solve that problem before building additional features that don’t solve the core problem.

Fred Wilson is a well-known VC and general partner at Union Square Ventures, which he cofounded in 2003. Earlier this year, he shared his predictions for 2023, which I recapped in this post. This week, he shared his updated thoughts on the venture capital sector.

Here are a few takeaways:

• Venture capital has been in a downturn for roughly eighteen months.
• The NASDAQ peaked at ~16,000 in November 2021.
• The NASDAQ was down ~33% by June 2022 and ended 2022 at ~10,500.
• As of July 14, the NASDAQ was at 14,113—up ~36%.
• Interest rates and inflation are driving the NASDAQ.
• The Fed raised rates aggressively in 2022 because of post-pandemic inflation, causing asset prices to decline.
• Inflation is down now, which means rates may have peaked.
• Expectations drive markets, and inflation and interest expectations have settled down.
• Venture capital lags public markets by a few quarters.
• Venture capital will likely respond to the NASDAQ’s strong 2023 quarters.
• Venture capital may be through its downturn.

Taking a company public has historically been a popular way for investors, founders, and employees of venture-backed companies to get liquidity for their company shares. It makes sense that public markets heavily influence venture capital.

I can’t predict the future, but as Fred said, in the next few quarters we’ll have a better idea of where things are headed.

I always like to support hometown Atlanta founders. I recently listened to an interview of Ben Chestnut, founder of Mailchimp. In 2021, Mailchimp was acquired for $12 billion. I was curious to hear what Ben had to say post acquisition.

Ben shared lots of great information about his childhood and various other topics. He explained what made him go from “we’re never selling” to being acquired. He also said something about the origin of Mailchimp that caught my attention.

Ben was running a web design agency that was struggling to grow. One day, his wife was watching the Opera Winfrey Show; Rich Dad Poor Dad author Robert Kiyosaki was the guest. Kiyosaki talked about passive income and recurring revenue. Ben heard some of this and was inspired. He began searching for a recurring-revenue business, only to realize that he already had one—Mailchimp. Keep in mind that this was three or four years after the Mailchimp product had launched, but it was more of a side project that had received little attention from Ben or his cofounder, Dan.

They looked deep into the revenue of the Mailchimp product versus the revenue of the web design agency and realized that Mailchimp was growing despite being ignored. They decided to focus on Mailchimp. The rest is history.

Given the current interest rate environment, there’s been a lot of focus on fast-growing companies trying to reach breakeven or profitability. Many fueled their growth with losses when capital was cheap. Those days are likely over, and these companies are now concentrating on generating cash instead of consuming it. All of them won’t survive, but the ones that are solving painful problems and that have strong leadership teams have a higher probability of becoming profitable.

There’s another segment of companies that I haven’t heard discussed as much that I’m curious about: companies with recurring-revenue business models that grew rapidly because of COVID tailwinds and that generate material free cash flow, but that saw their growth rates slow or flatline. These companies can be cash registers. If they retain their current customers, they will generate cash on a recurring basis.

The recurring cash generation of these companies is key. They have cash from customers they can use to experiment with growth activities and ideas. The recurring-revenue nature of their business model means that cash will be replenished. They can keep experimenting. Learnings from failed experiments can be applied to new experiments. Hopefully, compounding learnings from experimentation will lead to the growth engine being restarted.

To be fair, restarting growth is hard—especially for a large company. It often involves retooling entire functions, such as sales and marketing. These efforts can be painful and take time to bear fruit. This isn’t something all management teams are able to achieve. But if they are successful, the rewards could be enormous when these companies are revalued.

I’m curious to see which cash-flow-positive, recurring-revenue companies can restart their growth and what impact it will have on their valuation multiples.

I chatted with a founder about a seed fundraise he’s considering. He wants to raise $2 million. We talked through his thinking, and I realized two things: he didn’t have a great grasp on current market valuations, and he didn’t realize how raising that much capital at today’s lower valuations would dilute his ownership, especially if he continued to raise capital.

I did some back-of-the-envelope math regarding his future round and a few hypothetical rounds after that. It was eye opening to him. He realized that dilution by early and subsequent rounds would have a material impact on his ownership as founder and materially reduce his proceeds if his company were to be sold.

Raising capital is hard right now for early founders. Even if you can raise the amount you desire, it’s worth thinking through how much you need, the current market valuation of your company, and how dilution will affect you. Tools that can help founders understand the dilution impact of fundraising rounds are out there (645 ventures built one). Spending time with one of these tools can help founders quantify the impact of dilution.

Every month I get email updates from several early-stage founders. They usually include what’s going well and not so well with the business, along with the latest company metrics. In 2022 and the first half of 2023, the tone of these updates wasn’t optimistic. The fundraising environment wasn’t great, and founders were reducing expenses to extend their runway.

Over the last two or so months, I’ve been seeing more optimism in these emails. The fundraising environment is still tough. But founders are sharing more signs of being closer to product–market fit. Metrics are improving, and for some of them, revenue and customer growth are beginning to accelerate materially.

This is anecdotal, of course, and not representative of all early-stage founders, but it feels like founders got the message and may have been able to right the ship. I hope so. I look forward to seeing if this is confirmed in the remaining 2023 updates.

I had several side hustles as a kid. Mowing lawns, selling CDs, selling automotive parts, washing cars, selling bailed hay . . . I was always down for a side hustle. I even worked 12-hour days building houses one summer and earned a cool $125 a week (yes . . . per week). A friend recently asked me what motivated me at such a young age.

The driver was wanting independence. I vividly remember my parents telling me they wouldn’t buy certain things for me. Their reasoning was solid. We weren’t rich. Money didn’t grow on trees. I needed to earn the expensive things I wanted. My parents controlled how money was spent (and rightly so because they worked hard to earn it), which meant my buying decisions depended on what they’d allow.

I hated this dependence. It felt suffocating. I was limited because my funds were limited. I decided to start doing things to earn money and reduce my dependence on my folks. To their credit, when they saw what I was doing and why I was doing it, they encouraged me. They didn’t try to reassert control (even though I was still living under their roof). They told me I could do whatever I wanted with the money I earned, with a few exceptions.

Disliking feeling dependent and doing what I could to break away from it led me to entrepreneurship. The more I learned about entrepreneurship, the more I saw it as the path to a life of independence (and not just financial independence).

I caught up with a founder recently. He’s started several companies. He’s got one running smoothly, with a management team installed. He’s got another off the ground and is currently installing the management team. Even with all this, we talked about new ideas he wants to pursue.

This founder is a zero-to-one person. He gets energy from taking something from the starting line to the end of the first leg of the race. He isn’t the person who’ll finish the rest of the race. He wants to get things going and put the right people in place to win the race. The idea of taking an idea and turning it into something—not living the entire journey—excites him.

When he’s asked why he doesn’t keep running his companies himself, his explanation is simple: He gets bored working on the same thing too long.

Entrepreneurship is a choose-your-adventure journey with lots of ways to achieve success. This founder is a good example. He’s founded several successful companies, taking them only from zero to one. After that he’s let other people capable of growing beyond one take over. He’s happy watching the companies he founded from the sideline while he incubates his next big idea.

I listened to an interview of Scooter Braun recently. Scooter has had a wildly successful career in the entertainment industry. He’s credited with discovering Justin Bieber, and he managed several other top entertainers. He recently sold his firm, Ithaca Holdings, for $1 billion and acquired Quality Control, one of the most successful rap labels—which happens to be in Atlanta—for around $250 million.  

Braun shared advice he’d received from Jeff Bezos, founder of Amazon.com, on work–life balance. Bezos thinks you shouldn’t have to balance two things you love and that harmonizing them makes more sense. To do this, he communicates to people in his personal life how much he loves what he’s doing at work and what the latest developments there are. At work, his team knows how much he loves his children and what’s going on with them. The idea is to integrate and harmonize your work life and home life by making everyone feel in the loop, part of what’s going on in the parts of your life they can’t see. If you must miss a work event because of something child-related, everyone understands because they’re in the loop and know your children take priority.

Braun went on to share that for many years he kept his work and personal lives very separate but cared deeply about both. This ultimately created issues in his life because, as he put it, “it was like being married to two different people,” which wasn’t fair to the important people in his life.

I’ve been more of a balance person historically—I tend to try to keep work and my personal life separate. Sometimes it’s worked and sometimes it hasn’t. The advice Braun received from Bezos definitely resonated with me. It has me thinking about sharing more about the important parts of my life with people who are important to me. I’m naturally a private person, so I want to harmonize in a way that feels comfortable, given that trait.

Here’s the clip of Braun sharing what he learned from Bezos and how it affected him.