One thing I hear founders discussing is raising the next round of growth capital from venture capital investors. That’s their goal. They orient everything the team does around it. They spend time figuring out what metrics investors need to see to be comfortable investing. Then they work backward to hit those metrics.

I know a founder who set a goal of raising a few million for his seed round, even though he had sufficient capital in the bank. He heard that seed-stage investors want to see a few hundred thousand dollars in revenue before considering writing a check. He wasn’t close to that, so he found a way to get there fast. His software product was sold on a subscription basis (monthly or yearly), meaning the revenue was recurring every month or year. He decided to run a promotion to give new customers lifetime access to the product in exchange for a one-time payment at a heavily discounted price. The result was a surge in new customers and one-time revenue.

The founder hit the metric that seed investors wanted and got meetings with dozens of firms. The problem was that the quality of the revenue was low. First, the revenue wasn’t recurring, but the costs of running the platform were. Next, the customers weren’t people who were enthusiastic about the product because it solved a problem for them. Rather, they were bargain hunters who were loyal to getting something for a steal. They were never satisfied, and they needed a lot of handholding from the service team to onboard and use the product. They just weren’t an ideal customer profile for his product. After many conversations, the VC firms decided against investing in this company—I assume for these reasons.

The lesson from this is to start with the right goal. The goal of any company should be to satisfy and bring value to customers by solving a problem that’s sufficiently painful for them. A company that succeeds in doing this produces positive metrics (revenue, retention, engagement, etc.) that investors like to see.

All companies need capital to stay alive, but continuously raising capital from investors shouldn’t be the end goal. Instead, it should be the byproduct of having created something that satisfies customer demand for a solution to a painful problem and that has the potential to scale tremendously. By focusing on the customer and creating something they want, you up your chances of getting capital from investors (if you even need it).

This week, an entrepreneur told me about a real estate project he’s finishing. He shared that he ran into several delays and other hurdles that he didn’t anticipate. Because of them, he had to adjust how he funded the project to give himself enough runway to complete it. The project looks great and is projected to do well financially.

During our chat, I asked him about the projected completion timeline versus what played out. He planned for the project to take a little over a year, and it ended up taking twice as long. The only reason he was able to complete the project instead of being forced to abandon it was that he personally had the cash to see it to completion.

In the end, it should all work out for this entrepreneur. His situation reminded me of a lesson I learned the hard way as an early-stage founder. When I’m doing something difficult, unforeseen events will cause things to take twice as long as I thought they would. Building in enough runway to support things taking twice as long should be part of my plan.

Yesterday I shared a key concept I took away from reading Home Depot cofounder Ken Langone’s book I Love Capitalism!: An American Story. Today I read a section where Langone shared the details of how he orchestrated Home Depot’s successful IPO in 1981. It was a tough environment in which to raise money from public-market investors. The economy was in a recession, inflation was through the roof, and interest rates were surging. But Home Depot was just a start-up and needed cash.

One week before the IPO date, bankers said they could fill only $3 million of the target $6 million the company needed to raise. Langone got to work and figured out a way to craft a creative deal and sell it to the existing investors (who ended up not being able to sell shares in the IPO). Everyone agreed to the new terms, and the company raised the $6 million it badly needed.

Langone’s reflection on this difficult situation stuck with me:

If there’s anything I would take a bow for throughout this whole process, it would be this: never giving up, and thinking creatively, instead of reactively, when the chips are down . . . . You get to enjoy lemonade instead of the lemons God gives you . . . .

Langone was in a tough spot. Home Depot cofounders, employees, and existing investors were all counting on him to remove the IPO roadblocks before the deadline. He was in a high-pressure situation, and he kept pushing. He focused on figuring out how to accomplish the goal given the hand they’d been dealt. His solution was unorthodox but ended up working. Absent Langone’s persistence and resourcefulness, Home Depot might not have gone public in 1981 or, worse, survived.

A few weeks ago, a friend suggested that I learn about the founding of Home Depot, since I’m in Atlanta. I did, and one of the cofounders wasn’t what I expected. His name is Ken Langone. He’s a colorful character from humble beginnings, a hybrid between entrepreneur, venture capitalist, and investment banker. I watched a few YouTube videos of him and got more interested in his story.

I discovered that Langone wrote a book called I Love Capitalism!: An American Story. It’s about his life and adventures in business. I bought it as soon as I found it and started reading. I’m not finished yet, but so far I’m enjoying it.

One concept that Langone shares in the book is over-delivering to cement relationships. Langone was the banker who IPO’d Ross Perot’s company, Electric Data Systems (EDS), in 1968. Langone had never taken a company public before and had a lot riding on the EDS IPO being successful. He thought highly of Perot. He wanted this transaction to be a success, and he also wanted to build a long-term relationship with Perot. Because of EDS’s uniqueness and growth potential, he was sure the public markets would be receptive to the IPO. He told Perot he could take EDS public at 100 times earnings (a number far higher than other bankers thought possible), or $15 per share.

The IPO was a success, and Langone was able to deliver Perot 115 times earnings, or $16.50 per share. Perot was ecstatic. He publicly praised Langone whenever the opportunity arose. Perot’s praise and the publicity about the EDS IPO got Langone a flood of new business. It also cemented his relationship with Perot because he far exceeded Perot’s lofty expectations.

Langone watched others over-promise and under-deliver. They’d close a transaction but ruin relationships because they’d lost people’s trust. Langone didn’t want to ruin relationships, so he took a different approach. To build a relationship and trust, he set what he thought were reasonable expectations and worked doggedly to over-deliver.

Fun fact: Because of Perot’s relationship with Langone, Perot was one of the first people who got the chance to invest in Home Depot when it was an early-stage company in 1978. Perot came close to investing $2 million and would have owned 70% of Home Depot if the transaction had been completed. As of the writing of this post, Home Depot has a market cap (i.e., valuation) of roughly $375 billion.

I’m reading All I Want to Know Is Where I'm Going to Die So I'll Never Go There: Buffett & Munger—A Study in Simplicity and Uncommon, Common Sense by Peter Bevelin. I’ve never read a book structured like this one. It takes old quotes from various letters and interviews that Charlie Munger and Warren Buffett gave and structures the quotes as if they were part of a conversation with someone seeking their wisdom.

I’m not done with the book yet, but one quote from Charlie Munger caught my attention today:

I have what I call an ‘iron prescription’ that helps me keep sane when I naturally drift toward preferring one ideology over another. I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.

A few days ago, I shared that Henry Ford had a similar view of the importance of understanding other people’s perspectives. Ford and Munger are two credible people who achieved outsize business success. Ford died in 1947; Munger, in 2023. Since they reached the same conclusion although their professional careers occurred at different times, it’s probably timeless wisdom. I want to work toward mastering it.

The more I read about the history of capitalism and the great entrepreneurs who came long before us, I more I see a pattern: the best companies of all time were built by entrepreneurs who understood human psychology—mainly that people are more easily influenced by stories than by logic or facts. People find stories more relatable. Facts and logic can feel cold and impersonal. It makes sense that history’s greatest companies were built by entrepreneurs who were gifted in storytelling.

Mother Nature wired me to communicate with facts and logic. My natural storytelling abilities are average on my best day. For a long time, I’ve recognized the power of storytelling and wanted to be a better storyteller. But I’ve never put in the practice to improve this skill, so I’m still average. This year I want to change that. I’m going to seek out creative ways to publicly practice and improve my storytelling in 2024.

I read a quote today from Henry Ford that stuck with me:

If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from his angle as well as from your own.

I try to see things from other people’s perspectives, and I’ve gotten better at it, but I’m not where I want to be. The Ford quote was a good nudge; it reminded me of the importance of mastering this skill. I’m committed to working on this until I’ve mastered it.

I’ve been discussing the topic of company vision with a few founders. These conversations reinforced to me that some founders aren’t clear on what vision means. They talk about how much revenue they’ll generate in five or ten years, what they plan to build, etc. It’s good to be clear on your aims, but that’s not vision. Those responses are too tactical.

I believe the root of why these founders are missing the mark isn’t a lack of ability or intelligence. It’s simpler than that: it’s a terminology mix-up and maybe not enough practice in thinking non-tactically.

Vision is painting a picture of what you think the world could look like. It’s painting a picture of how you want the world to look. It has nothing to do with your company.

Even when the term is defined, I’ve noticed that it’s hard for some founders to understand vision without an example. This week I spent time searching and found what I think is a good example.  

In a talk, Brian Armstrong, CEO and cofounder of Coinbase, detailed not only the company’s thinking behind its vision but also its mission and strategy. Here’s how Brian expressed the company’s vision and mission:

• Vision: Create more economic freedom for every person and business in the world over the next ten years.
• Mission: Create an open financial system for the world.

The vision is big. It will materially change the world if it becomes reality. The mission is what Armstrong’s company plans to do to accomplish its vision. I like how Armstrong explains the logic behind each statement, how they differ, and how they support one another.

At the end of the video, Armstrong ties the vision and mission together: “Our vision is to have a billion people in, say, five to ten years accessing an open financial system, through our products, every day. When we’ve done that, we will have materially changed the economic freedom of the world and we will have bent the shape of that curve.”

In a different video, Armstrong clearly explains his vision of the world: “I imagined a world where anybody with a smartphone could have access to sound money and financial services; where every payment could be as fast, cheap, and global as sending an email.”

Coming up with a vision isn’t easy. It requires zooming out and thinking about the future of the world and what’s possible. Hopefully, the example above is useful and helps founders articulate how the world will be transformed if their company achieves its mission.

This week I caught up with a founder and chatted about his fundraise. He recently kicked it off (again), and it’s going well this time. A few bank wires have cleared and he has significant interest from various funds for the remainder of the round.

This is starkly different from his efforts to fundraise last fall, so I wondered why he’s having more success this time around. Is something materially different about his company (or pitch)? When I asked, he said the company is still progressing at the same rate as a few months ago. He sees a difference in venture capital investors. More investors are receptive to his pitch, which is essentially the same as a few months ago.

In March, we’ll see start-up fundraising kick into high gear: more pitch competitions, demo days, etc. Lots of founders will “officially” kick off their raise and begin pitching investors. Fundraising wasn’t great last year. How will it go this year? I’m curious about whether this founder’s fundraising experience will be the exception, the norm, or somewhere between the two.

One of the books I reread periodically and recommend to idea-stage founders is The Mom Test. It’s a short read and can add tremendous value to founders who are thinking about what solution they should build or what problem they want to solve. Every founder I’ve recommended the book to, and who read it, loved it.

The book focuses on a single topic: customer discovery. It outlines a simple, effective methodology for talking with customers. The book details how to ask the right questions (that aren’t leading questions) so conversations yield valuable insights about customer pain and its severity. The book does a good job of laying out an approach that helps founders better understand what (if anything) they should build, which can prevent founders from wasting time, energy, and money. Another reason I like this book for idea-stage founders is that it helps them avoid the common solution-in-search-of-a-problem trap.

If you’re an early-stage founder who hasn’t found product–market fit yet, consider giving the book a read.