We recently posted our top 4 behaviors that are leading signals of failure for a startup. To celebrate the start of what we hope will be a prosperous 2017 for you, we now share the top 5 founder behaviors that are early indicators of success. While many of us intend to do these things, it’s important to bring consistency and a continuous feedback loop to each of them. Documenting and building a process to include these regular behaviors in your business will allow you to build a solid foundation from the beginning.

Some, very few, were born with these light bulbs already lit. My intention, my belief, is that by illuminating parts of the path, in a certain order, your moments of clarity will be increased and accelerated. I’ve seen it happen with startups in our new intensive bootcamp in less than a week.

These top behaviors help to create the mindset necessary to build a successful, scalable company, but may contradict what you usually read or hear. We'll start with the hotly debated topic of revenue.

  1. Generate early revenue 

Yes, I realize that the point of venture capital is to get a product to market that takes investment, but bear with me… 

Every company in the top 10% of our portfolio generated revenue before they really had a decent product (some with no product at all, or what we call customer funded development). Revenue does a lot for a company.

  • It proves that the founders can make and sell something.
  • It extends the cash runway.
  • It can even eliminate the need for investment altogether.
  • It puts the founders in the driver’s seat of their company and the customers in the passenger seat, where they should be. In short, it is the best market validation you can get.
  • It is one of the mindset triggers for a founder. We’ve found that meeting certain company milestones require a change in mindset in order to continue. First revenue is one of the most important.

Early revenue won’t be scalable revenue, so don’t overthink it. As long as it fits with your key customer problem hypothesis, you’re on the right path. Why not get paid to learn?

Since we’re talking about your customer hypothesis, no discussion of startup success these days is complete without hitting on customer discovery and product market fit. It turns out that this is another key success behavior of founders.

  1. Pay more than lip service to Customer Discovery

Most of the founders we come across talk about customer discovery, but few develop and follow a process for testing their hypotheses. Early revenue is a direct extension of great customer discovery. Our most successful founders master this simple (yet not easy) art.

Prior to Steve Blank’s book The Four Steps to the Epiphany, the concept of product market fit was certainly in use, but not defined in such an elegant manner. Even after he wrote it, and his former student Eric Ries wrote The Lean Startup, we hear lots of people talk about it, but few actually do it well. Even in the top 10% of our portfolio, there are a few examples where they didn’t take it seriously for the first couple of years.

A recent example from our third fund is YooLotto. They persevered, but struggled, over the past few years to crack the code of their b2b2c app (b2b2c = consumer users and business buyers, or what is known as a “two sided market”). Then halfway through 2016 their revenue started to hockey stick. At their annual investor meeting, I asked if there was one thing that flipped the switch, so to speak. The answer was quick off the CEO’s lips, and simple. They asked their users why they use the app. From there they began offering what customers really wanted, and they generated 20x their previous year revenue.

It’s not just our alumni companies. We’re seeing the “aha moment” much quicker with the companies now participating in The Gauntlet. In level 1, the biggest objective is 50 documented customer discovery interviews, along with original and revised hypotheses around the problem they are solving and for whom.

Many of the companies that started the program already generating revenue tripled that revenue within one month. Just by talking to their customers about the problem they solve. 

So be honest with yourself…are you really doing customer discovery, or are you just paying it lip service? 

Good customer discovery is a key component of the third success behavior…

  1. Always be iterating

Many are surprised to learn that all of the lean principles (manufacturing, development, startup, etc), open workspaces, and even customer development originated from the observations of a fighter pilot in the Korean War. Founders like Mark Zuckerberg have designed their companies around his theories, and knowing why may just help you understand how rapid iteration is the way to win.

John Boyd, U.S. Air Force fighter pilot, observed that American fighter pilots had a 10:1 kill ratio over North Korean forces, in an inferior aircraft. He knew that the pilots weren’t necessarily more skilled, so he dove deeper to figure out why they were 10x better at hitting their targets. 

What John Boyd discovered, and later applied to all war strategy, thus changing the face of our military, was that American pilots flew an aircraft designed with more opportunity for observation (bubble canopy), and a superior ability to adjust to rapid changes – though it was slower and less agile. Based on this and further experimentation, he developed a concept called the OODA Loop.

OODA stands for:

Observe

Orient

Decide

Act

boyd2.png

He found that American fighter pilots were capable of faster OODA loops, thus were able to make small changes to correct any problems with the last action. To give an example, consider a chess game. If I let you take away half my chess pieces, but I get 2 moves for your every 1 (and we’re similarly skilled at chess), I will beat you every time. Don’t believe me? Give it a try!

Founders should constantly be testing out new ideas by observing what happens along the way, making sense of the information, deciding on a course of action, and executing on it. The faster and more often they go through this loop, even if the decisions aren’t optimal, the more success they will find in the long run. Get inside your competitors’ OODA Loop and you’re going to win. I’ve been using this one to overcome a leadership challenge recently and it’s working very well.

  1. Be resourceful

Tech Wildcatters was designed to bring a vast array of resources to a group of founders, educate them on key concepts and tactics, and let founders figure it out from there. We don’t do the work for them, and we don’t allow a “nanny state” in the program. If a founder can’t figure out how to take resources and use them to achieve their goals, they won’t be successful in the long run, and maybe entrepreneurship isn’t for them. At some point they need to stand on their own two feet, so we prefer to empower them early rather than take away their power by creating a dependent state.

What does resourceful behavior look like? It starts with founders knowing what they need to solve for, and what resources would be required in a perfect world. Most people stop here. They get stuck trying to gather resources the way everyone else does it. People who believe everything has a fixed cost and that all people and objects behave the same, are rarely successful in this game. On the other hand, those who look at the problem, then at the resources they have on hand, and put together a novel solution – they are the true creators. This is where innovation happens.

Resourceful people are by definition tenacious people. No company makes it without a tenacious leader. Someone who will keep working once things get tough. And they will get tough. Sometimes on an hour-by-hour basis. So if you’re giving up because you don’t have the money to pay a full-time developer market rates, you’re already being passed by the person who can think about resources in a different way.

Resourcefulness shows most in how you build your team. And the best founders know…

  1. The right team is everything

Successful founders eventually find and build a loyal and engaged core team. 

The best example of a great team we’ve funded at TW is Ryan and Drew from Validic. They’re your classic college friends’ (more acquaintances) duo that decided to start a company. But they did it from different cities. Their resourceful trick was to keep skype open all day so they could lean over and talk to the other whenever they needed to (think massive OODA Loop advantage). Then they decided to apply to Tech Wildcatters so they could spend 3 months really pushing on their idea in the same city with no distractions. They were generating about $10,000 per month of very unscalable revenue, but it was all around the problem of motivating people to lead healthier lives. When I introduced them to the idea of customer discovery during orientation, they jumped on it, and continued to use it as they repeatedly tested the market with product ideas. The two shared an efficiency apartment and a king size bed, but were always at our office. Aside: they’re both married and now have kids, but weren’t too proud to risk judgment (another really important behavior). They met and engaged multiple mentors, and turned many of them into investors and long-term advisors for their company. Don’t forget that your team isn’t just the people who work at the company during the week.

But wait, we have a runner up!

Bonus: Don’t forget to communicate

I’ve seen more investments go into so-so ideas because the founder sent regular updates to people they met along the way. And those so-so ideas turned into great, scalable companies. For more insight on why, check out Jason Calacanis' thoughts.

If you’re interested in learning how to use these behaviors to create the success you know you’re destined for, check out our upcoming one-week intensive Gauntlet Bootcamp. The next one is March 13-17th.