Are entrepreneurs born or taught? I’d say a bit of both. Environmental and genetic influences are so intertwined for most things (diseases, our health, intelligence, etc.) there’s no simple answer. Having said that, when we talk about founders and startups we often think of it as something intrinsic to the people, something inside them, built into their very beings. In this case, I’ll use the phrase “Founder DNA” (borrowed from Raymond Luk). It’s not a perfectly accurate statement, but it serves our purpose well enough and it speaks to the intangibles that are a part of evaluating founders (although there are many tangible criteria too.)
A number of people have asked me, “What do you look for in a founder when evaluating an opportunity for Year One Labs?” It’s a great question, and it’s taken me awhile to write this out in a cohesive way.
For starters, it’s expected that all founders are passionate. You can’t really filter entrepreneurs on passion (unless they’re blinded by their passion and can’t face reality.) We have to go a lot further than that. Most founders also have a certain level of initiative that goes beyond what you see in other people. Initiative is expected. But there are many layers to initiative that really tell a deeper story. So here’s what I look for and how I’d define “Founder DNA”:
- Judgement. Judgement is the counter-balance to wild enthusiasm. Judgement is measured by the decisions someone has made to-date for their startup. The role of a startup CEO (or founder) is decision-making. I can keep asking, “Why?” to every point a founder makes, and get a sense of their thought processes, reasoning abilities, and a lot more.
- Getting Shit Done. Founders need to go so far beyond “initiative” it’s rarely possible; but that’s what we’re looking for. Specifically, we’re looking to see proof that founders can execute at every level of their business. That means getting through milestones. It means getting out of your comfort zone to do stuff that you don’t like or know a lot about (which incidentally is a big part of running a startup.) It means finding any means necessary to do what has to be done. If you’re not a technical person you can’t sit around and wait for someone to show up and co-found the startup with you. Outsource the development for a prototype, learn to code yourself, get out to every event and find a co-founder. Ability to execute and make things happen shows drive, purpose, aggressiveness, organizational skills and more. It’s initiative+++. There’s a time to plan and there’s a time to opine about the future of the universe. But most of the time is a good time for getting things done.
- Big Vision. I think it’s clear at this stage that investors are looking for big vision. Year One Labs is no exception, even if our model is focused on early exits. But there are two caveats to that. The first is that we look for a certain element of realism in founders’ visions. Coming in to pitch us and saying, “Facebook has a lot of problems, we’re going to replace Facebook,” equates to a big vision but it’s not realistic. It shows a lack of judgement and awareness. The second caveat is that your big vision can’t get in the way of making things happen and getting shit done. So #1 and #2 above are priorities above the big vision, but without the big vision founders are also much less interesting and inspiring.
- Market Knowledge. A lot of founders don’t really understand the market dynamics they’re jumping into. They don’t have a clear and full picture of the competition. They don’t have a sense of the market size, opportunity, and risks involved. We don’t look exclusively for domain experts (those people that have been in a specific industry for a long time and know it inside-out), but some level of domain expertise and certainly a good level of domain knowledge is very relevant. If a founder has a ton of “getting shit done” drive s/he would be neck-deep in the market, learning every facet of it through research, talking to others in it, etc. (even if they didn’t work in the industry.) That shows a level of initiative we’re interested in. Beyond market knowledge, we’re also looking for a real awareness of what’s going on in the world of startups. Founders need to be connected and clued-in to what’s going on, who is doing it and why.
- Interest and Ability to Learn. Early stage startups are driven by learning. The founders that stand out are those that obsess over learning as much as they can about their startups, the market, customers, etc. Learning is a measure of progress, and we’re always looking to understand and quantify a founder’s progress. Founders need to demonstrate an interest and ability to learn (and then show how that learning impacts what they’re doing.) Related to this, founders need to be able to accept and openly look for feedback. Founders that are either too stubborn to see reason or different points of view, or too scared to face the truth are not going to impress.
- Agility. In some ways this is a sub-item under “Getting Shit Done” but it’s important to pull it out and speak about it specifically. Startups are fast-moving and need to constantly adjust and adapt. Some founders cling to an idea and drive forward like bulls; others are more like hummingbirds darting around almost recklessly. Somewhere in the middle is the appropriate analogy (I’m too tired to come up with it now) for a founder that tempers the right amount of bullheaded drive with agility. That agility should be based off the constant learning founders are doing.
- Sacrifice. Sacrifice for the sake of sacrifice is pointless. We’re not looking for martyrs. But the amount of sacrifice a founder has made or is willing to make is a good measure of their “guts”. Sacrifice is a demonstrable representation of the intangible qualities that you see in some founders where you think, “Damn, he’s got what it takes.” And sacrifice ties very nicely with “getting shit done” because it’s often an inability to sacrifice something that holds people back. But those people that are utterly compelled to make things happen will sacrifice and take risks.
- Maturity. This is a tough one to quantify, it’s one of those intangible “gut” things that we look for in founders. It’s not really tied to age. It is tied to some of the other things mentioned above like learning, judgement, sacrifice. It’s also reflected by a founder’s interests (are they diverse?), communication skills (can they debate and reason well?), poise, presentation (how do they present themselves?) Maturity is important. It usually comes with an inner strength and the “intestinal fortitude” needed to survive the rigors of running a startup.
This isn’t an exhaustive list, but it does highlight the overarching themes of interest when evaluating founders and startup opportunities. It covers the components of Founder DNA that we look for and try to assess regularly when meeting entrepreneurs. The process isn’t easy and it isn’t full proof. And I think it’s fair to say that investors of all kinds (angels, venture, seed accelerators, etc.) use their own “guts” to get “a rough feeling” of entrepreneurs and use that as a significant barometer for determining their own interest. Often this reaction coms from a first impression (yes, first impressions do matter – a lot.) That’s human nature.