At the recent CED Tech Venture Conference in Raleigh, I sat through the presentations of two successful entrepreneurs that both built companies worth over $1BN (unicorn level valuations). The first was by Doug Lebda, founder & CEO at LendingTree, the marketplace for finding loans, now a publicly-traded company with a market capitalization of approximately $3BN. The second was by Michael Chasen, the founder & former CEO at Blackboard, the education software business that was recently sold to a private equity firm for $1.7BN. It's not every day you get to learn insights from companies that scaled to unicorn levels, yet alone two in one day!! So, my pencil was feverishly writing to keep up.
LESSONS FROM LENDINGTREE
The summary of Michael's presentation was that most entrepreneurs follow the wrong process on ideating and rolling out new ideas. Most entrepreneurs follow a linear process of causal-based thinking, most typically in this order: study market, brainstorm, ideate, budget, approval, prototype, build, sell, go to market and pray. This process can often take over a year of time, from start to finish. And, is filled with pitfalls along the way, since it does not start the process by identifying your key strengths, assets and relationship to best exploit before you begin.
Instead, Michael follows the principles of effectuation, a process pioneered by UVA entrepreneurship professor, Saras Sarasvathy, in 2001, based on her research of 27 entrepreneurs in the late 1990's. There are five core principles that define effectual logic, as documented on Wikipedia and as further shaped by Michael:
- The Bird in Hand Principle. Entrepreneurs start with what they have: who they are, what they know and who they know. The entrepreneur does not start with a given goal, but with the tools he or she has to work with.
- The Affordable Loss Principle. An entrepreneur does not focus on possible profits, but on the possible losses and how they can minimize those losses. Manage to risks you can afford to take in terms of time, money or reputation.
- The Crazy Quilt Principle. Entrepreneurs cooperate with parties they can trust to make a pre-commitment. You look for partners with "skin in the game" by asking the question "what would it take to get your commitment" on a barter or low-cost basis.
- The Lemonade Principle. How do you turn "lemons" (surprises) into "lemonade (pivots to new opportunities).
- The Pilot-in-the-Plane. The future cannot be predicted, but entrepreneurs can control some of the factors which determine the future. This includes creating your own market, creating a culture "grounded in change" and having new hires "self-eject" themselves after their first 48 hours of not fitting in.
By following these principles, you are able to take an "unknown road" which can take a year to travel, down to a "known road" which you can navigate in a couple months. And, we all know how important speed can be in increasing the odds of success for a startup. Doug was able to get all 500 employees at LendingTree to think like entrepreneurs, and not a big company, by following these principles for all of the key decisions they made along their growth curve.
LESSONS FROM BLACKBOARD
Michael came up with his own five pieces of wisdom gained from his time at Blackboard:
- Be passionate about what you do (even if others are not).
- Focus on the business (not the office)
- Share the vision (but sell the execution)
- Constantly seek advice (but make sure you are the expert)
- Realize disruption changes everything (again and again)
Which he then amended to six pieces of wisdom by adding: when you are done, do it all over again!! He is practicing what he preaches, by recently taking over as the CEO at PrecisionHawk, a leading seller of commercial drone technology. Hopefully, he is on his way to building his next unicorn company.
Anyway, I thought there were some good pearls of wisdom in here, from two guys that know what they are talking about. So, I share these nuggets with you, to apply to your own businesses. This is the follow on piece to Lesson #275: Lessons from the Best VC Ever (John Doerr), also from the same conference.
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