Blog industry

April 18, 2024

Startup Lessons from 25 Years and 5 Startups

Tim Enwall

founder startup business

I had the privilege of speaking at the Cloud Native Startup Fest half-day, a co-located session day during KubeCon EU 2024 (see the video here). My talk focused on lessons learned from my 25-year journey across five startups. Although it’s challenging to condense 25 years of startup experience into a 12-minute talk, I was able to distill it into six core topics essential for anyone contemplating launching a startup as a founder.

Who am I? Why listen to my lessons?

While I wouldn’t consider myself a Steve Jobs or Elon Musk with multiple multi-billion dollar startup successes, my experience with five startups has provided me with valuable lessons. Each startup venture has taught me something new, adding to my pattern recognition skills. Admittedly, these lessons are sprinkled with a dose of humility.

For those interested in my work, you can view my career trajectory on my LinkedIn page. There, you’ll find the five startups where I was the founding CEO: two were acquired by public companies (Gartner, Google), one startup valued over $1.5B at its last valuation (I stepped down as CEO after two years, so credit for its success goes to my successor), one was acquired by another smaller company, and Fermyon, which is currently a work in progress.

Lesson 1: Spend 66-80% of your personal time on Product <> Market Fit

Running a successful business might sound simple: “supply something that’s in high demand”. This principle of supply and demand is the foundation of all marketplaces and businesses.

However, most demands, especially the worthwhile ones, are usually fulfilled by existing supplies. Breaking into such markets with a new supply is challenging because of the credibility barrier (“I already know Supplier X; they’re a well-known brand name — who the heck is NoName Y?”).

In addition, demand is not static; it’s a dynamic concept and process. With 8 billion people in the world, millions of corporate purchasers, and information moving at the speed of light, it can change rapidly.

Entrepreneurs often spot these changes in demand sooner than existing suppliers. Sometimes, they notice fundamental shifts in the nature of demand due to changes in what is being supplied. For example, the demand for cars shifted fundamentally with the introduction of gas-powered cars; many people now refuse to buy petroleum-based vehicles, causing a shift in demand to electric vehicles.

Moreover, the product or service you’re supplying is also constantly evolving from your pre-MVP offering, to your MVP, to your post-MVP and beyond.

Andreesen Horowitz published an insightful piece on “annealing” the product and the market. The term “annealing” refers to the process of molding a metal into its final shape. This analogy perfectly encapsulates the fluid process startups go through to understand the nature of the demand, discern the specifics of the emerging demand, and adapt the supply (the product) based on the information received from market demand. It’s rarely the case that the original product, as conceived in the founders’ minds, matches the exact supply that the founders imagined. The nature of the demand becomes clearer over time and with active listening, while the nature of the product is always evolving.

Successful entrepreneurs are highly attuned to these market signals. They understand them, constantly monitor them, discern the nuances, and adapt their product swiftly.

This process of listening to the market and defining and adapting the product should occupy the majority of your time. In my opinion, at least 66%, if not 80%, of your time should be dedicated to these two activities alone, leaving the remaining 20% to other tasks. The rest should be delegated (this is what I do for Matt at Fermyon), ignored, or tackled in your spare time. If you don’t have product-market fit you flat out do not have a business and your investments are for naught. If you only give product-market fit half your attention (or less) you run too much risk you’ll miss the essence and drive the business into default.

A phrase that encapsulates product-market fit is: “is the product flying off the shelf”? This phrase signifies strong demand and sufficient supply. For a product to “fly off the shelf,“ three factors must be true:

1. The problem must be significant enough to solve in the customer’s situation.
2. The solution must be the “best fit” solution.
3. The price must be accessible and sized appropriately for the problem being solved.

If these conditions are true individually and collectively, then your product will be flying off the shelves, indicating a successful product-market fit. And remember: you have to be selling, selling, selling your product at that intersection with the market.

Lesson 2: The best capital to fund your business is customer capital (not venture capital)

Businesses have successfully operated for centuries without venture capital. They have consistently produced goods, selling them at a profit to fund further production. This method is arguably the most disciplined approach to business, as it relies on a pure product-market fit. Either the product suits the market sustainably, or it doesn’t. For instance, Steve Jobs built 100 Apple 1 computers using the proceeds from telephone black boxes he produced with Steve Wozniak. This led to more funds for more computers, and the cycle continued. While Apple did eventually take on venture capital to boost business growth, its early days were sustained by operations from a garage and VW bus.

Another interesting story involves my former boss at Apple. He worked for a spin-off company that was slated to be a high-growth startup. One of his employees had a girlfriend who wanted to sell Pez dispensers to collectors, and they developed an auction algorithm. The employee asked to host the website server under his desk, using the employer’s network and internet connection. The site expanded to other collectible items, creating a profitable marketplace. The employee eventually left to develop his business, which had already established product-market fit and was funded by customer capital. That company was eBay.

In this business mode, get ready to live modestly. Be prepared to take a second mortgage on your house (as I did) and to interact regularly with your customers. Or, as Pierre (eBay) did, start your business in your “moonlighting” hours while still employed (with your employer’s permission if required). If your product has value, it will sell. Even if you take “seed” money from friends and family, start selling immediately. Even if it involves selling your labor, it’s a good start that will indicate if the market values your offering while providing for your family. Don’t be discouraged by those who say “labor-based businesses don’t attract venture capital.” That may be true, but as you establish product-market fit, you can reduce the labor component and increase the product component, remaining profitable. Then you’re in a position to receive venture capital because you don’t need it! Steve and Pierre didn’t need it; they just wanted it for faster growth.

More than 80% of the first-time, successful entrepreneurs I know started their businesses with customers bearing the costs.

Exceptions occur when the investment of your time or money is cost-prohibitive — things like developing drugs, complicated robots, or satellites. These ventures need external capital to establish a starting point. I’ve seen these types often start with government grants.

Lesson 3: If you (feel you) must raise venture capital Always Be Closing (ABC).

Raising venture capital for your business before achieving product-market fit can be challenging. This process is often driven by emotion—fear and greed—and it’s important to understand that venture capitalists are paid to be risk-averse (fearful) - it’s your job to make them greedy.

If you manage to secure a meeting with a venture capitalist, bear in mind that you’re one of hundreds vying for their attention. The chances of your business being “the one” they choose to invest in this year are slim. As a newcomer, you face even stiffer competition from experienced startup founders. Be prepared to be told “no” dozens of times (I’ve had at least 100 over my career).

As an entrepreneur, you must constantly be closing deals with everyone—customers, employees, suppliers, and venture capitalists. Every interaction in their network is a pitch session. You’ll need to consistently pique their interest and address their concerns.

When you take on venture capital, your goal is to create competition for your equity. If only one firm is interested in funding your business, it might indicate your concept or enterprise is weaker than most. Businesses that are likely to succeed with venture capital usually have multiple firms interested in buying their shares.

Don’t worry about dilution when taking on venture capital. While you don’t want to give away more of the company than necessary, it’s more important to focus on other terms. Dilution only becomes significant in mediocre success outcomes. In heavy success or failure scenarios, it’s largely inconsequential.

If you have multiple venture capital firms competing for your equity, choose based on who would make the best wise business counselor (as your new board member). The firm’s reputation, network and the amount of capital they can invest in subsequent rounds are important considerations. However, selecting a partner who can provide wisdom, guidance, support, and accountability should be a higher priority. A good business counselor can help you make key decisions, bring resources to bear, and navigate future capital raising.

Lesson 4: Align co-founder values or anticipate a destructive divorce

Numerous co-founders I know at companies have self-destructed due to fundamental conflicts over core values. Conflicts can range from differences in spending habits and competitiveness to disagreements about accountability and flexibility. Considering that you’re about to invest a significant portion of your life and emotional energy into a venture with this person, it’s essential to find co-founders who deeply share your values. This foundation will guide your growth and the values you hire and fire for. It’s crucial that everyone who joins shares these core values, which are central to identity and distinct from beliefs and lived experiences.

Here’s an exercise I recommend: Write down your values in rank order. Then, meet with your co-founders and share your lists. If your top values aren’t reflected in their top five, and particularly if your top two aren’t in their top five, reconsider before the partnership solidifies and emotions become invested. The resulting separation could devastate the company.

Once you’ve established your top four or five values, document what behavior represents them, what characteristics they produce, and create a company values manifesto. Hire based on these values and ask new hires to sign the manifesto, affirming their belief in, agreement with, and commitment to uphold these values, and to hold others accountable to them.

Ultimately, values are the foundation of our trust in each other, and an environment of trust is crucial for effective team execution.

Lesson 5: Build the best workplace. Ever.

Life is short, and startup lives are even shorter. Starting the venture of your dreams only to hinder its progress with a dysfunctional and unproductive workplace makes no sense.

Perhaps your sole competitive advantage lies in your ability to produce more per person than larger, better-funded competitors. The best way to maximize output with limited resources is to have a team that’s aligned, working in harmony, and exerting equal effort. A harmonious team of 10 can outperform a dysfunctional team of 100.

So, bring joy to your workplace. This doesn’t mean introducing games and coffee machines. Instead, it involves creating a fulfilling environment where each person looks forward to coming to work each day.

This topic demands a broader discussion. We’ve started a blog series on it, beginning with ‘High Performing Startups — the Fermyon System’. Before diving into that, consider reading Patrick Lencioni’s ‘Five Dysfunctions of a Team’ and Google’s Project Aristotle. Both delve into the core attributes of high-performing teams. Our blog series serves as a practical guide.

Lesson 6: Two most essential traits of entrepreneurs

Many people often ask me, “What does it take to be an entrepreneur?”

Here’s my response:

1. Believe passionately, almost to the point of madness, that your product or service is absolutely essential to the world.
2. Be incredibly comfortable with the concept of risk and the possibility of failure.

The second point is often what prevents 95-99% of all great ideas from being realized. Most people can’t handle the risks associated with earning less money, risking their mortgage, and sacrificing their family time for a work endeavor that may fail. You must be prepared to give everything — your capital, your energy, your emotions — and be ready for the possibility of failure. Of course, failure is not guaranteed. We all know of those few companies that have become household names and have succeeded. However, the statistical odds are not in anyone’s favor.

The first point is either something that happens or it doesn’t. You’re either captivated and suddenly convinced that your concept must exist, no matter what! or you’re not. Do not venture into the startup world if you cannot muster this intense belief in what you’re about to undertake. You will experience too many sleepless nights, moments of doubt, naysayers, and temporary setbacks to overcome anything less than a pure, radical, and unadulterated belief in what you’re doing.

This brings us to what Steve said when asked, “What’s the number one piece of advice you’d give?”

People say you have to have a lot of passion for what you’re doing, and that’s totally true. The reason [emphasis added] is because it’s so hard that if you don’t, any rational person would give up.” Steve Jobs, Nov. 15, 2017.

And so, it boils down to this: maniacal belief or you’ll quit too soon. Nearly every successful entrepreneur had to persevere. To say “it’s hard” is an understatement. It’s more than hard, it’s more than titanic, it’s more than any word you’d use to describe “difficult”.

Nevertheless, I’ve found nothing as rewarding as the journey and, in the end, reaching the peak of that particular mountain with a group of people who had the time of their lives.