Occasionally I meet a government official and he asks me, “What should the government do to help startups?”

I always say the same four things:

1. Provide funds
2. Get out of the way
3. Make startup visas a reality (but this is a conversation for another day)
4. And launch a startup travel program

Most governments already provide funds (although they should be continuously looking at how and where, and the efficacy of those funds, because I suspect a lot of money is wasted or given out inappropriately).

Some governments understand the need to get out of the way. By that I mean that governments should not dabble in startups. They should put the capital into capable and trustworthy hands, and let those people (who are hopefully experienced investors and/or startup operators) deploy the capital. This definitely happens in a few places, which is great. And there are also capable investor that are government employees too (just to provide the appropriate caveat here!)

Governments can also get out of the way by streamlining as many processes that involve startups as possible. Things like incorporation, filing taxes, employment paperwork, etc. should be as simple as possible for startups to do.

A lot of this is already working reasonably well. So neither of those suggestions are terribly actionable. But I think the fourth one is, and would be quite simple to realize.

The government should have a program that pays for entrepreneurs to visit San Francisco (Valley / Bay area) or New York to experience the best startup ecosystems around.

Here’s how I think about it:

• Entrepreneurs that are based anywhere outside of the Bay area and New York need to get to the Bay area and New York (and perhaps elsewhere like Boston, or any major city that has a lot of startup activity) to learn and connect.
• They need to go there because the acquirers, investors, partners and customers are all there.
• The benefits of spending a few weeks in the Valley and San Francisco are incredible — you’ll build an instant and valuable network, you’ll see “how it’s done”, and you’ll bring some of that fire and spirit back. You’ll realize that the world is moving insanely fast and you need to do so as well to compete and win.
• Traveling to the startup meccas of the world is an eye opening and unforgettable experience (I remember doing it in 2007 and it changed me).

It’s incredibly easy to plug into Silicon Valley. You need to know a couple key people and you need some money to get there and stay there (for longer than a week). You can anchor your visit around a couple of events (there are multiple events daily, so there’s plenty to do), and if you’re from Canada you can plug into existing networks like the C100 or other well known Canadian entrepreneurs. You can use Clarity to connect with Canadian entrepreneurs about going to the Valley to connect with other Canadian entrepreneurs (and non-Canadian ones too). Incidentally, Clarity is run by a Canadian (Dan Martell).

Of course, this idea is relevant for places other than Canada.

If you’re anywhere other than Silicon Valley or New York, a startup (or founder) travel program makes sense. When a government official in Omaha, Nebraska (where I was promoting Lean Analytics) asked me what the government could do, I pitched him the travel idea. Nebraska has a lot of great startup activity, but it needs to send its best entrepreneurs to San Francisco and/or New York to have their eyes opened in a big way.

When you go, you need to stay for a couple weeks at least. Three or four is even better. You don’t need to have a ton of meetings lined up, just go. And the government could pay.

It wouldn’t be expensive: ~$5-$10,000 each time. The government wouldn’t pay for everything, just cover the flight, a place to stay and maybe tickets to a couple of events (if they’re not free).

There would have to be a vetting process for the entrepreneurs (the government isn’t there to pay for your vacation to the Valley!) but this wouldn’t be hard to do. Put together a small group of startup leaders and get them to recommend entrepreneurs or vote on entrepreneurs that apply.

If we (in Canada) sent 20 entrepreneurs per year it would cost about $200,000 to do so, but the value would be incredible. Each one of them would come back more connected, with a lot more knowledge and a ton more enthusiasm and excitement. Plus they might find a customer or two, a partner, or an investor, all of which brings capital back into the country. Those twenty entrepreneurs become new connectors to key startup ecosystems that others can now leverage, which in turn builds stronger and longer lasting bridges between us and those ecosystems. Everyone wins.

I’ve seen some programs that help entrepreneurs get to the Valley, but I think more could be done. Hopefully someone makes it happen…

I know this blog has been quiet of late, but it’s with good reason. Lean Analytics is finally done and available for order. Find it in a bookstore near you soon. Or, if you’re too eager and can’t wait to get to a bookstore (yes, they still exist!), you can buy the book on Amazon or O’Reilly and get it immediately. You can get it in hardcover format or e-book.

The best place to go is here: http://leananalyticsbook.com/buy-lean-analytics-book/

If you buy the book or already have, then you can enter our awesome sweepstakes (which ends March 31st!) You could win a free trip to Startup Festival, and there are tons of other prizes.

Writing Lean Analytics with Alistair Croll has taken over a year. It’s been an interesting and amazing experience. I’ll write about it (probably a lot!) someday…but for now the focus is on promoting the book and getting people’s feedback. And we’re getting a lot of great feedback so far. Here’s my favorite to-date:

Some of #leanstartup movements’ most valuable insight can be found in #leananalytics. BIG ups to @acroll & @byosko. twitter.com/IzzyPalmerin/s…

— Izzy Palmerin (@IzzyPalmerin) March 20, 2013

So what is Lean Analytics all about?

Well, I’d like to share two presentations with you that I’ve done recently that help shed some light on what we’re talking about. There’s some overlap between the two, but hopefully you find these useful.

Thank you to everyone that has bought Lean Analytics (and will). I can’t tell you how much it means to Alistair and I.

I produce a fair amount of content, and I give most of it away for free. I’m writing a book, and although the book costs money, it’s basically free (~$16 for the hard cover and ~$10 for the e-book); priced so low that it really shouldn’t be an issue for people. Plus it took over a year to write. And you don’t make any money from books (unless you sell an absolute shit ton of them).

People produce free content (published books included) to get people to buy other things from them or build a platform for themselves. That’s the crux of content marketing. Attract people with free content, monetize them in another way.

That’s what most magazines, newspapers and other content publishers do as well (online or in print). They produce content in the hopes of building a massive, loyal audience and then they monetize in other ways. Usually it’s advertising, which basically means they sell the hell out of their audience.

The audience is the product.

Advertising makes the Internet go-round, but I think enough is enough. Content publishers shouldn’t create content in order to sell the audience. They should create content to sell content.

The content should be the product.

If you want to make money from the content business, you should try charging for the content. It’s the fastest way to know if anyone gives a shit. If they don’t, they won’t pay. If they do, I’m betting they’ll pay. Not many of them, but the fact is that even in a Software-as-a-Service business or e-commerce business conversions are low–1-3% from free users or passersby to paying customers. Could you get 1-3% conversion on a content business, charging a subscription?

In order to make advertising work you need millions and millions and millions of page views. There’s no other way. Advertising rates are so low online, and I don’t think they’re going up. Let’s say you can get $5 CPM (which means $5 for every 1,000 page views) with an online ad unit. If you get 1,000,000 page views/month, you’re earning $5,000/month in revenue. (1,000,000 / 1,000 * $5) That’s not very exciting.

Instead, you could earn $5,000/month in revenue by finding 1,000 people willing to pay $5/user/month.

Which model would you prefer?

The Internet is a big place. If there aren’t 1,000 people interested in what you’re doing that are willing to spend $60/year, you really have to question what you’re doing.

We’re seeing content publishers experiment more frequently with the subscription model (and others, like paywalls). Marco Arment’s The Magazine is a good example. It costs $1.99/month and there are no ads. I’m not sure the issue approach is necessary (putting out issues at certain time intervals), but nevertheless, The Magazine is popular. And there are others. But many of the entrepreneurs I speak with that are in the content / media space still fall back on advertising as their core business model.

I think the answer to hyperlocal is also in subscriptions. People are interested in hyperlocal content (particularly in specific niches) but online advertising won’t work well enough. A small startup tackling a hyperlocal niche is not going to have the expertise or time to produce great content and hunt down advertisers (especially when advertisers are going to spend $20 for an ad). AllNovaScotia.com is a hyperlocal online business that provides business-centric content on a daily basis. It’s 100% behind a paywall. They have a very simple website and mobile application. That’s it. And it’s not cheap–about $30/month (with taxes). But it works. They’ve got thousands of subscribers. They provide a service that no one else does (the newspaper has business news, but not as much as what AllNovaScotia offers). AllNovaScotia isn’t a billion dollar company, but from what I hear they were profitable in their first year of operation and haven’t looked back.

Free content has its place. If you’re building your brand, trying to attract customers, demonstrating expertise or developing a platform from which you want to launch other things, then content marketing can work wonders. It’s not free to produce, but no one’s stopping you from publishing on the Web. And that’s awesome. But if you’re in the content / media business you need to look at alternative business models to advertising. As everything moves online and advertising rates stay flat (plus supply goes up), you have to look at subscriptions, paywalls and other revenue models that basically say, “If you like this content and want it, you have to pay for it. End of story.”

Lean Analytics is almost finished. It’s being printed as we speak and should be available in mid/late March. You can pre-order the book today. And if you do, you’ll have a chance to win some incredible prizes.

You can learn more here about our sweepstakes: http://bit.ly/15a5ObV

All you have to do is pre-order the book and then tell us about it via Twitter or email. That gets you into the sweepstakes. So what can you win?

The grand prize is a trip to Startup Festival (July 10-12) in Montreal. This is one of the best startup conferences around, with awesome content / presentations, great events and a beautiful city.

We’ll get you a ticket, cover your travel expenses and make sure you get access to the speakers and other top people attending.

There are a ton of other awesome prizes too, from some amazing companies like KISSmetrics, Geckoboard, Totango, Chartbeat and more. Check ‘em out:

As you can see there’s an analytics theme here, but we’ve also got some great t-shirts and printed photos from Static Pixels.

1. If you’ve bought the book already, go here: http://bit.ly/15a5ObV and tell us about it!
2. If you haven’t, go here, get the book: http://bit.ly/PrRIdQ and then tell us about it!

The sweepstakes ends March 8, 2013 so you only have a couple of weeks.

Pivot. We’re all familiar with the word — and many people now roll their eyes when they hear it. The word has been bastardized, overused, and taken out of context. But it doesn’t mean pivots aren’t important. Dont hate the word, hate the people that use it incorrectly and ignore its importance.

Pivot. Say it with me. Pivot. Pivot. Pivot.

Recently, I did a presentation on pivoting: what it means, why it’s important, and how to do it properly. In preparing the presentation, I came up with a definition that speaks to the core of pivoting:

A pivot is a shift in one aspect of your startup’s focus based on validated learning.

(Others of course have defined pivots before this, but this is how I described it.)

I’ve included the presentation as a Slideshare deck. Below that, I’ve shared some additional details on the 6 things you need to pivot successfully.

And yes, I hype the book, Lean Analytics — it’s coming out March 8th, and we’re hoping people will pre-order copies ASAP!

You can do so here: http://leananalyticsbook.com/buy-lean-analytics-book/

On to pivoting. So what do you need to at least try and pivot successfully?

1. Big vision. Without a big vision — without knowing where you want to go and why you’re doing things — you simply can’t weave your way there. Without a big vision, you’re weaving (or pivoting!) aimlessly. Lean startup can help you achieve your big vision but it can’t create or define it for you.
2. A deep understanding of the problem. Most entrepreneurs I speak with genuinely don’t understand the problem they’re trying to solve whether or not it’s worth solving. They haven’t dug into the problem enough. Or they’re trying to solve a universal truth. If you don’t understand the problems at their core, you can’t figure out how to pivot properly.
3. Validated learning. A pivot without actual learning is basically a “lazy pivot”. You’re deciding — on a whim, with no real evidence — that you should go do something else. And usually that lack of learning means you pivot somewhere half-ass, ending up at about the same point in your startup’s progress as you were before (not very far!)
4. Actual (falsifiable) hypotheses. Validated learning isn’t enough. You need falsifiable hypotheses that you can test against, otherwise it’s very difficult to know if your pivot is going well or not.
5. Metrics and lines in the sand. A big part of Lean Analytics is our discussion of what to track and what to compare yourself against. You need to know your One Metric That Matters and ideally you’ve got a targetin mind. If you miss the target, you re-evaluate; if you hit that target, you have the confidence (and data) to move on to the next step.
6. A passion for the pivot. Entrepreneurs live on passion. Without it, you’ll fail, it’s as simple as that. There’s nothing in Lean Startup or Lean Analytics that says you can automatically follow a process and win. You need passion and guts. So even if you have everything else ready to go for your pivot, if you don’t actually care about where you’re pivoting to, it won’t work.

I don’t have a problem with the word pivot. It means something important to me (and to many others) and shouldn’t be taken lightly. And when you see companies successfully pivot, the results are amazing. In the book we have a number of examples of companies that successfully pivoted.

• Backupify started as a B2C company offering consumers cloud-based digital storage. The company realized it was paying $243 to acquire a customer that only paid $39/year. The economics didn’t make sense. Backupify pivoted to providing (essentially) the same service to businesses. The company is now growing successfully, and has a Customer Lifetime Value (CLV) that’s 5-6x its Customer Acquisition Cost (CAC). That’s a fantastic ratio! (Typically in a SaaS business you’ll want to aim for 3x.)
• Parsely also started as a B2C company, providing a reading tool to consumers to help them find content they’d like. It had thousands of users, but not enough revenue. Parsely pivoted to a content suggestion tool for publishers, and then pivoted again to offer publishers analytics tools.
• Circle of Moms was originally called Circle of Friends. By leveraging the Facebook platform back in 2008, it grew its user base to 10 million. Except engagement was terrible. Mike Greenfield (one of the founders) did some exploratory analysis on the company’s data and discovered that moms were incredibly engaged users (in stark contrast to most others.) The company pivoted to focus on moms, and a few years later exited to Sugar, Inc.

Pivots aren’t “get out of startup failure free cards”, far from it. They lead to more intensity, more decisions, more uncertainty, and more hard work. But if you’ve decided it’s not time to quit, but time to pivot then do it properly and go for it.

“Would you like to make more money?”

“Is hiring people hard?”

“Are you overwhelmed by email?”

“Do you wish you were healthier and more fit?”

For most people the only answer to these questions is “yes”. They’re truisms. Universal truths. Universal problems. And they’re unsolvable.

Too many startups confuse big vision and trying to solve universal truths. Big vision is important. You need a lofty, change-the-world type goal. But claiming you’ll solve a universal problem is usually an indication that you don’t understand the real problems at-hand.

When selling to prospects, founders make the mistake of starting with a question that can only have one possible answer, and when they get that answer they use it as justification for their solution.

Startup founder: “Do you have a hard time recruiting great talent?”

Prospect: “Yes. It’s very hard.”

Startup founder: “I thought so! I’ve got the perfect solution for you.”

It goes like this: Big, obvious problem (universal truth) … our solution … win!

Except it doesn’t really work that way. All the real issues, challenges (and opportunities!) lie in the dot dot dots.

For starters, asking these kinds of questions is pointless if you want to learn about a customer’s pain (which you should). The actual pain is many levels deep, nuanced and specific. Let’s break down the universal truth, “I want to be more healthy and fit.”

What’s the real problem here? It could be a lack of time. But that’s probably not specific enough; most people have 30 minutes of free time a day, and they still don’t exercise. Maybe people are too embarrassed to go the gym and workout in front of other people? Maybe people are embarrassed about the locker room experience? Maybe people don’t know how to work out or what’s right for them? Maybe it’s all of the above for one segment of people and other problems for another segment?

You have to really understand your customers’ problems–peeling away the onion layers–until you get right down to the core. Asking “yes/no” questions, especially those where everyone is almost always going to give the same answer, won’t help you learn anything useful.

Secondly, the leaps of faith you’re making are just so massive you can’t possibly know the gotchyas that are going to hit you square in the face. Even if you’re an industry insider with domain expertise, you’re bound to hit some snags that you could have discovered in advance. Attempting to solve a universal truth without identifying the risks and connecting the dots is a surefire way to fail.

Earlier I said that universal problems aren’t solvable. That’s not actually true. Universal problems are solvable, but they’re only solvable when you truly understand your customers: how they operate, buy, what they care about, their pain, etc. You have to fill in the dots and know the gotchyas in advance if you ever want to solve the big, hairy problems that truly matter. Don’t sell solutions to universal problems, sell solutions to the underlying problems that allow you to genuinely make a difference for your customers, and over time realize your big vision.

Entrepreneurs aren’t quitters. To succeed you need to be resilient, thick skinned and borderline crazy. You need to have just the right amount of delusion to believe you can succeed, spurring you on despite the absurd odds. But sometimes, you have to quit.

On the other hand, sometimes you need to pivot. Unfortunately, many entrepreneurs use the pivot as an excuse to remain delusional and shift their fleeting attention to something else, after the slightest setback. Alistair Croll calls this the “lazy pivot.” Truth be told, most of these “lazy pivots” aren’t really pivots, they’re “do-overs.” Pivots and do-overs work, but not when they’re done with a minimal amount of effort and rigor.

So, when should you pivot or quit?

It’s a hard question to answer, and for each individual it’s going to be a bit different. There are examples of entrepreneurs sticking things out through really dark days and coming out years later with an “overnight success.” Other entrepreneurs pivot or change businesses entirely and win. There are no absolutes. But speaking with an entrepreneur yesterday about this very topic, here’s what I suggested:

1. Be pragmatic and intellectually honest with yourself.

The best way to poke a hole in your reality distortion field is to use practical, straightforward tools to evaluate your progress. Take the Lean Canvas as an example. If you look at your Lean Canvas, can you honestly say you’ve got enough of the answers to keep going? Do you really understand the problem you’re trying to solve? Do you really know if the solution is right? Do you understand the channels to market? Do you have an unfair advantage?

Answer those questions with as much truth as you can muster and the patch is clearer.

Metrics can help as well. Here’s a rough draft of the Lean Analytics Cycle that Alistair and I are including in our book, Lean Analytics:

It provides a basic framework for focusing on what’s important, testing things, and then measuring results.

To pivot, you need to have learned something through your previous efforts that gives you clues as to where you should focus. You can’t pivot without some form of validated learning and new assumptions. If you don’t have new insight that gives you even a hint of a direction, you need to really question whether it’s worth continuing. Pivoting for the sake of pivoting isn’t the answer (although you can get lucky…)

Before you pivot, you still need to look at the emotional side of things.

2. Do you care anymore?

Let’s say you’ve found something interesting that you think you can pivot to from your current business. Before doing so, you have to ask yourself whether you’re passionate about the new idea/problem/market/etc. If you’re not, it’ll be tough to succeed, even if you have proof that pivoting is the right move.

I’ve met quite a few people (it’s happened to me too) that get so lost in what they’re doing, and they invest so much into it, that they actually forget why they got into the business in the first place. So as you investigate the potential of a pivot, you have to ask yourself, “Why am I even going to do this? Will I be passionate about this new thing?”

If the answer is yes, you pivot. If the answer is no, you stop.

Maybe you take a step back to reevaluate, give yourself some time to breathe and think … or maybe, it’s time to quit, admit defeat, lick your wounds and come back another day to fight the fight once more.

Pragmatism + Passion (or Lean + Guts)

Lean Startup provides the framework for helping you make honest, pragmatic decisions about your progress and what to do next. You know if you’re not making fast enough progress. You don’t need someone else to tell you that. And you know if you’ve gained any insights worth exploring further or if you’re at a dead end. The pivot is either there and fairly obvious or it’s not. If you get into fabricating pivots wildly, you need to rethink your strategy.

At the same time, entrepreneurs don’t do anything without their guts. We need our guts, our instincts and our delusions to drive us off cliffs without any parachutes. Guts matter; you’ve just got to test them. Instincts are experiments. Data is proof.

If you get to the point where you don’t know what to experiment on anymore, and you’ve lost your purpose (in terms of why you started the business in the first place), you need to seriously look at shutting it down. If you don’t know what to do anymore, pragmatically, but you’ve still got a fire in your belly for what you set out to do, take a break and look for a restart. Don’t hang on, experimenting for the sake of experimenting, pivoting for the sake of pivoting. Pivot when you know what you’re pivoting to, quit if you don’t.

As a quick aside, the book that Alistair and I are writing about Lean + analytics is almost finished! I’m excited (and nervous!) about getting it into people’s hands. Publication date is April 2013. In the meantime, you can pre-order it here: Lean Analytics: Use Data to Build a Better Startup Faster

Today, I’m pleased to announce that Localmind has been acquired by Airbnb.

See Techcrunch’s story and Airbnb’s blog post for more info.

Localmind was Year One Labs’ first investment, and it’s our first exit as well. It’s a fantastic day for the team: Lenny Rachitsky, Beau Haugh and Nelson Gauthier. They worked like crazy over the last couple of years to develop a platform and vision around how we will communicate, interact and share in a mobile + local + social world. They’ve pushed a lot of thinking in this space and will continue to do so as part of the Airbnb team.

If you’re not familiar with Airbnb, you should be. They’re killing it. The company announced in June that it had booked 10 million guest nights since it started in 2008. And recently, CEO Brian Chesky said that by December, Airbnb will be booking more rooms than all Hilton hotels combined. Their showing hockey stick curve growth with incredible potential and opportunity going forward.

I’ve written about Localmind a few times since I started working with them. Looking back on those posts is instructive of the progress and challenges they faced:

• Localmind 2.0
• Finding Your Startup’s One Thing
• Lessons Learned Launching a Lean Startup Accelerator

Like any startup, Localmind had its ups and downs. I learned a lot working with the team. I learned a lot from the experience of helping the company start with an idea, build a product, raise capital, scale and exit. I’m grateful for that. It was an incredible journey.

Lenny, Beau and Nelson now have an opportunity to make a bigger impact with a faster growing company on a ridiculously big scale. I have no doubt in my mind that they’ll be incredibly successful with Airbnb and with whatever they choose to do in the future.

A lot of companies still talk about being in stealth mode and aiming for a big hoorah type launch. It doesn’t usually work. Worse still, startups that are in stealth mode rarely talk to customers, prospects, users, partners or anyone else before their big reveal, which means they have little to no validation for what they’re doing. They haven’t given themselves the opportunity to learn anything while they’ve spent months building their “revolutionary” product.

Stealth mode stinks.

You need to find a way of getting to customers, talking to the right people, and validating (or more likely invalidating) what you’re doing. If you go into a dark cave, spend months building something, and then launch, there’s a very good chance no one will care. And that’s incredibly painful.

Quiet mode is different.

I’m working with a couple startups right now that are in quiet mode. They’re actively talking to customers–daily in fact–and collecting tons of feedback. They’re iterating quickly and learning … all in plain sight. But no one, except for their users, cares. No one, except for their users, notices. And that’s perfectly fine. That’s the right way to “launch” without being in stealth mode.

You don’t need to get on a rooftop and shout your name out loud. You don’t need press. You don’t need community buzz. Unfortunately this is what so many early stage companies go after, and worse they use the buzz as validation that they’re onto something and prematurely attempt to scale without any supportive data or proof that they should. Or they go in the complete opposite direction into stealth mode and speak to absolutely no one, including customers and users, which is a recipe for painful, gut-wrenching failure.

I like quiet mode. Go directly to your customers, as often as you possibly can. Build tight, fast feedback cycles. Learn, learn and learn some more. Adjust your plans and get the traction and proof you need before “launching” officially to the rest of the world. By the time the rest of the world takes notice (and you want them to) you’re cruising. That’s quiet mode. Strategic, lean and focused.

One caveat to this is for recruiting. I’ve argued before that you need to make a lot of noise and build a recruiting magnet if you want to attract people. The press and community buzz can help with this, but very early on, it’s probably not worth the effort. Network, build relationships, and speak with people about what you’re doing in one-on-one sessions. But stay focused. Don’t get into the hype machine for the sake of recruiting and then get caught up in it for everything else. Quiet mode means being strategic about how you recruit. In stealth mode, when you choose not to speak to anyone whatsoever, you have no chance (unless you’re already extremely well connected.)

Yesterday I chatted with an entrepreneur that was looking for advice on raising capital. I’ve written quite a bit about fundraising in the past, but it’s a hard topic and a challenging thing for people to get through. Most people have never raised funding before, and even with all the advice out there it’s still a scary, black hole.

While speaking with the entrepreneur (which was through Clarity btw) the basic question was this: “When should I raise capital and what are investors really looking for?”

There’s no easy answer.

Investors look for all sorts of different things based on their own experiences, preferences, what’s hot right now, and so on. But I highlighted four things that critical, of which, I’d argue, you need at least two or three. Here they are:

1. Past success. If you’ve successfully exited a company before, there’s a very good chance you can raise money again. Investors like to back past winners, and will often reinvest in founders that they previously made money on. First timers, of course, can’t play this card. Go to #2.
2. Unfair advantage. This is a hard one to quantify, most companies at an early stage don’t have an unfair advantage, but I would specifically look for one of two things: (a) fantastic, never-before-seen technology; or (b) industry insight that no one else (or very few others) have. These are two key differentiators that can lead into genuine unfair advantages. If you don’t have one of these, you’re going to get hammered on how you’re different than the competition.
3. Vision. In a Lean Startup world, vision occasionally gets lost. I’ve argued that vision and Lean Startup are actually symbiotic, but I think many early stage companies don’t really have a compelling vision. A truly inspirational, world-changing vision isn’t something you can fabricate out of thin air, but if you can share a future that your startup helps create and people believe in, you’ve got something meaningful. Incidentally, riding a trend is helpful but is not really meaningful enough in this category. For example, we know everything is going mobile, but saying that you’re going “mobile first” doesn’t count as a vision.
4. Traction. Traction rules everything. If you have traction, you may be forgiven on past experience, unfair advantage and vision. Your unfair advantage might be the traction, although the bar for traction is constantly going up (10,000,000 is the new 1,000,000), so don’t assume that you can get away with traction alone. Ultimately though, most startups don’t have significant traction when they try and raise capital. And without it, the other three better be there in a big way (or at least the unfair advantage and vision.)

If you can hold off on raising significant capital in order to build up traction, do it. Traction trumps everything else. If you can’t wait, or traction is something that’s going to take a long time (and/or requires the capital to get) then you need to have at least two of the other items I’ve described above. In some cases, I’m pretty sure super successful entrepreneurs can raise capital without anything else, but that’s a rarity.

Note: I didn’t mention team here. It didn’t come up in my conversation with the entrepreneur but it’s very important. Investors always look at the team and decide whether they can make a bet on the people. Past success is an indication of team quality, but so are the other things as well. If you have an unfair advantage, a strong vision, and/or traction, it’s very likely you have a solid team as well. In some cases the team is the unfair advantage because of their experience, insight, market knowledge, talent, past success, etc. So team is critical.

I also didn’t mention the market you’re going into. Investors care about large markets but having a large market without any of the above things won’t matter. It’s easy to say, “We’re targeting this multi-billion dollar market,” without really understanding if that’s true, if anyone in that market cares, or if you have any legitimate access or know-how into that market. So yes, big markets do matter, but it’s more of a “given” than the points I’ve described above.

For first-timers or entrepreneurs that haven’t hit a home run yet, focus on vision + traction. The traction proves you can execute and march in a direction quickly, and you’ve started to crack a real nut; the vision proves you’re actually going somewhere compelling.