Startups | Instigator Blog

Promises and Platitudes – The Dangers of Low Quality Advisors

Having great mentors can make a huge difference for you, individually, as an entrepreneur. I’ve never had a mentor, but looking back I’m certain it would have been very helpful. Even today. Mentors are there to help you, and by extension (potentially) your startup. But even if your startup fails, or you’re not going where you want with your job, etc. a mentor is still there adding value.

The same should be true with advisors. Advisors are there first and foremost to work with you as the founder of a company. Your Board of Directors is different. They have other responsibilities beyond helping you (as tough as that may sound.) But advisors are yours – you should pick them, and consider them mentors and friends that have your best interests at heart.

But the reality with advisors is that they’re often low quality and not particularly helpful. There are “celebrity” advisors that attach their names to projects, but don’t really do much. These might help with some buzz and momentum, but it won’t be sustainable. There are also advisors that commit a small amount of time but then do nothing but make promises and platitudes.

If your advisor doesn’t really understand your business (or you as a person – strengths, weaknesses, etc.) then their contribution is likely to be filled with common platitudes about startups and running businesses. The same sorts of things you can read elsewhere…Having said that, being told something by someone can be more effective than reading it, but still, this isn’t really enough to add significant value.

A lot of advisors are brought in to make introductions. And this can be extremely valuable. But again, if the advisor isn’t really committed, then how meaningful are the introductions? If someone is doing advisory work for 50 startups … are they really contributing value?

Pick your advisors carefully. Build a relationship with them beforehand, get to know them as professionals and people. Be demanding. Advisors are busy people, and they’ll forget promises they’ve made quickly if you’re not constantly stoking the flames.

And don’t assume you automatically have to give up equity in your startup either. I’ve seen this in a few cases; meetings between potential advisors and entrepreneurs are setup, and the advisor basically says, “Give me X% of your startup and we can work together.” Um, no. That’s not how a relationship is built, and it’s an unprofessional way for advisors to work. If an advisor is proving his or her value, you’ve built a relationship over some time, things are going well, then you formalize the relationship. Giving options or equity to advisors makes perfect sense – but you’re not obligated to do so out of the gate.

Advisors are people. They have the same motivations, goals, psychological issues, fears, phobias, etc. that you have. And they’ve got big egos too. You attract the best advisors based on personality fit, value they actually bring (not promise to bring), and through your understanding of what makes each individual advisor tick. Figure out what will convince someone to be your advisor, and pitch that.

Be wary of promises and platitudes. Take your time building your advisory network (or board, or team). But once you’ve got an advisor, make sure you get as much value out of them as you can (being respectful of their time, and making sure they’re getting enough out of the relationship too!) You need to be proactive with advisors – they won’t come knocking on your door asking if you need help – so go through their LinkedIn networks, figure out who they know, figure out how they can help, ask, be persistent, and reward them as the relationship strengthens.

Tell me what you think! >>

Competitive Research 101 for Startups

Whenever I get pitched by a startup, I always look to see if they’ve properly identified the competition. For starters, I can guarantee you that someone is already working on the same idea. It’s a universal truth. But more importantly than that, competitive research and analysis is one of those areas that is often horribly lacking from any pitch. There are a few reasons for this:

Entrepreneurs don’t want to know. Nobody likes to find a bunch of competitors doing the same (or nearly the same) thing. So entrepreneurs put blinders on.
Entrepreneurs are thinking too small. This is too often the case in Montreal, where entrepreneurs think of Quebec as a market. Even looking at your local market as an entry point is risky if you haven’t done your homework elsewhere.
Entrepreneurs have big egos, which makes them believe what they’re doing is unique and awesome. Egos are needed, but not if they blind you completely.
Entrepreneurs don’t bother looking. This comes down to not tackling your startup in a diligent, rigorous manner. Too often entrepreneurs get an idea, think they’ve hit a home run and start running wildly (in any and all directions.)

The existence of competition should not (necessarily) stop you from starting your company. It should color your thinking, create the appropriate context and help educate you on what’s going on in the market. And it’s one of the first places investors will look to help educate themselves on the market. Most investors aren’t experts in every market they invest in (they may not be experts in any of the markets!), and so a big part of their due diligence up front is to check out the competition.

This happened to me just a few days ago. I received a pitch, looked at it, and started doing some quick research. This is usually the first thing I do if the pitch gets passed my basic “sniff test” judgement (i.e. does it make any sense at all?) In this case I knew of at least one competitor. That’s going to happen a lot when pitching investors – they see a ton of deals – so they have cursory knowledge on a lot of companies. Then I went to Google and tried a couple of relevant search terms. In this particular case, one of the top 3 listings looked like a competitor. I checked them out and it seemed very similar. I saw a few other ancillary competitors as well. This took no more than 10-15 minutes.

I emailed the entrepreneur asking about competition. I listed a couple of references, including the one that looked like a direct match. I asked flat out, “What’s the difference between you and Competitor X?” He replied:

Not much. Fuck.

He followed that up with a more detailed comparison (after he spent some time looking at the competitor), but this essentially kills it for me. The fact that this entrepreneur hadn’t really looked at this competitor – which I had found in 10 minutes with very little understanding of his market – is really bad news. And before you think this is unique to this guy, it’s not. This happens all the time!

Competitive research is an important point of due diligence for investors. More importantly, you need to do it for your own edification. You need to demonstrate and actually have a level of expertise in your market that’s both broad and deep. Domain knowledge is a key advantage; and I bundle in competitive knowledge as a key component of that.

These days I use Crunchbase for competitive research. The profiles in there are often quite detailed and some of them have links to other competitors. With one competitor’s name you can typically find a bunch of others. AngelList is also extremely useful (although a lot of the information is probably hidden to entrepreneurs.) Try Quora as well. And Google almost always returns interesting results. Find a competitor’s name and type in, “[company name] competitors”.

Do your homework. Know your competitors and how you differentiate from them. This isn’t the crux of your pitch to investors, but it’s gotta be there. If a prospective investor (or customer, partner, etc.) can find a competitor in 10 minutes and you don’t really know who they are and how you stand against them, you’re in serious trouble.

Tell me what you think! >>

The Sole Purpose of a Startup Accelerator Should Be Making Money

If you’re running a startup accelerator or thinking about it, and your primary goal isn’t to make money, be very careful. Money drives everything. It makes the world go ’round.

Entrepreneurs might not start companies with the sole purpose of making money, but ultimately that’s the yardstick of success. Other things are nice, and important (having fun, changing the world, disrupting an industry, creating jobs), but it all comes down to whether or not you make money.

Angels invest knowing they’ll likely lose money, but unlike accelerators, they come in and out of the startup ecosystem, have lots of flexibility in terms of what they do and when, and they’re using their own money. I believe a great number of angels invest for fun and to help fellow (and typically younger) entrepreneurs. They’re giving back to the community. And as long as they can individually afford to do so, that’s fantastic. When things are booming, like they are now, they participate a great deal. When things are crashing, they’re able to pull back and adjust their risk. Accelerators that are committed to running for a few years don’t necessarily have that flexibility.

Accelerators raise capital from others and therefore have an obligation (just like venture funds) to demonstrate returns. If they can’t demonstrate returns, will backers continue to support them? The one exception might be an accelerator funded by a venture fund, because it’s using its own capital to create a “division” that’s focused on super early stage acceleration. In that case the motivation may not be money, it may be deal flow for the venture component of the business. That has risks as well though, because the venture fund won’t invest in every company inside its accelerator, and the negative signalling can be tricky.

Accelerators definitely have other benefits beyond making money. One of the biggest ones is helping to build the startup ecosystem (wherever the accelerator is located). There are definitely benefits to having accelerators in individual cities encouraging and driving entrepreneurship, and helping startups get onto more solid ground than they would have otherwise. Accelerators have positive effects beyond just the startups they fund; being promoters of a city/area, running events, building a brand that attracts attention from outside investors, etc. But what’s the likelihood of this being sustainable and growing (it takes more than a few years to build an ecosystem!) if an accelerator doesn’t make money? How long can it stay funded?

The best way to build a startup ecosystem: Make money. Incidentally, I believe this is true for accelerators and for individual entrepreneurs and startups.

A focus on anything but making money is a disservice to everyone involved.

How long will the people running the accelerator stick around if they’re not seeing a return? Altruism for the community isn’t enough to sustain most people.

How long will entrepreneurs keep participating in accelerators that don’t impact their odds of making money? If the startups that emerge from accelerators aren’t successful, people will question the value of the accelerator itself. And if the accelerators can’t attract the best entrepreneurs, they’re not going to succeed.

I absolutely believe in accelerators as a key part of a startup ecosystem, particularly in cities where there isn’t a density of activity. Accelerators help spur that activity, they create deal flow (for other investors), encourage entrepreneurship, etc. But if they can’t make money, they won’t survive.

Many accelerators use “capital raised by graduating startups” as a metric of success – and it’s definitely great to see companies leave accelerators and be in a position to raise capital – but it’s not the ultimate measure of success. Most companies raise money and fail. In the absence of exits (with successful entrepreneurs then re-invigorating the community through help, funding, etc.) a startup ecosystem can’t grow on top of itself. Accelerators are great for building the startup ecosystem, but I don’t believe they will survive and achieve that goal without being successful financially.

Tell me what you think! >>

Ben Yoskovitz

I'm VP Product at GoInstant.

I'm also a Founding Partner at Year One Labs, an early stage accelerator in Montreal. Previously I founded Standout Jobs (and sold it). MY BIO >>