in Big Ideas, Canada, Startups

Lowered Expectations

Lowered Expectations on MadTV featuring Keanu Reeves

I keep wondering about some entrepreneurs living in a bubble.

Not the usual doom and gloom startup bubble or a Incubator Accelerator Bubble but a reality distorting bubble that causes them to completely forget about why people (VCs, angels, banks, others) make investments in early stage companies. They seem to read TechCrunch and think that raising capital is easy. Investors are tripping over each other to make angel and seed investments in any Tom, Dick, or Harriet that can use Keynote and string together enough words to make buzzword bingo. And, of course, with nothing more than a PowerPoint presentation and hired developer these entrepreneurs figure that they should get a $4MM pre-money valuation and be able to raise $500-$1MM, just like any of the companies coming out of YC or Techstars.

I get emails with quotes like:

“I am tour de force, the type of person people want to invest in. Driven, smart, visionary, able to build a tech team and an excellent communicator.”

All I can say is, you need to wake up and smell the sweat. It’s time for me to be the harbinger of brutal honesty. The wrecker of unfettered dreams. The resetter of expectations.

  1. Ideas require execution.
  2. Your track record may not allow you to raise any capital without demonstrating traction.

Ideas are a Multiplier of Execution

“Same exact idea. Better execution. Big winner.” Fred Wilson.

The section is borrowed from Derek Sivers post. Ideas are part of it, but it’s execution that differentiates. It’s execution that is the massive multiplier. Stop thinking that ideas alone will differentiate. You need to demonstrate your ability to execute on the idea as a scalable business.

Execution = Demonstrate Traction

Before raising money, entrepreneurs must read The Capital Raising Ladder. This article is more than 2 years old but the key principles have not changed. Make a good guess which rung you are at? Do not pass go, do not collect $1MM on a pre of $4MM. You need to figure out where on the proverbial Ladder you fall and then figure out how to demonstrate traction. Just because you observe high tech startups and you think you can do better, this isn’t a reason that anyone should give you capital. You actually need to DO better. Go do the smallest thing to get the most bang for the buck. Call it lean. Call it customer development. Call it something. It doesn’t matter. You need to go do it.

What is traction?

It depends (go read Getting Traction). It can be revenue growth. But since many startups are too early for revenue, or are working on Dave McClure’s Startup Metrics for Pirates gives examples of consumer web applications metrics that can be measure to show growth and serve as a proxy for future revenue. Not building a consumer facing web application? Look at David Skok’s SaaS Metrics or Designing Startup Metrics to drive Successful Behaviour. It is your job to figure out how to demonstrate traction. These are starting points.

It might be as simple as demonstrating that you’re able to hire/build a team of committed developers. If you can’t convince a developer to work for sweaty equity, then you might have a hard time convincing others you are the right person to invest. If your expertise is unique and critical to the success of the venture but you can’t design the product and you can’t write code. And you can’t convince a technical cofounder or others that they should be able to work for sweat equity on the idea. Hmmm, it doesn’t lead me to think that you can convince a sophisticated (probably even an unsophisticated) investor that they should invest in you.

Start kicking butts and taking names

The goal is not to stop entrepreneurs from trying. The goal is to reset expectations about fundraising and to build world-class market changing companies. You want a $4MM pre-money valuation, go earn it! Get users! Get customers! Get big numbers on $0. What are big numbers? In true wishy washy manner, it depends. But I’ll tell you a for a startup aimed at cracking mobile for neighbourhoods in Toronto, the number of users better not be in the 100s. I’ll be impressed if the numbers are in the 10,000s, knocked over in the 100,000s and blown away in the millions. Are these number high? Are they outrageous? Maybe. But if you want a spectacular valuation, go prove to me that you deserve it.

Want to get $150,000 from Yuri Milner? Maybe you should figure out how apply to YCombinator. If you think it is so easy, prove me wrong and go do it. Maybe I’ll start a StartupNorth Fund, that all it does is bet against entrepreneurs. If you loose the bet you owe me a token amount of money, $100-500. If you win we’d invest in the next round at the negotiated price (we don’t actually have a fund to do this, but I’d be willing to stake $10-25k for matching).

Stop trying to get people to lower their expectations. Set you goals high. Figure out ways to hustle and be relentlessly resourceful, and make the metrics happen. I know we can build world-class companies (it was a busy funding week last week for Canadian startups). But we need to stop the charade that funding is flippant, easy, etc. Raising money is hard. Building a great company is hard. But it’s worth the effort.  Let’s go show the world that we can build bigger, better, badder startups.


  1. Sheesh David, talk about bursting bubbles ;) 

    Actually, I think you could stress the fact that funding isn’t the end game… and even, even, even if you manage to raise some capital your venture will probably still fail down the road. But at least focusing on execution and delivering real metrics will head you in the right direction.

    How’s that for setting expectations? Lemme know when you open up your startup financing hedge fund.

  2. Thanks Paul,

    If I had hit it, I’d be able to do this independently. I wonder if someone is crazy enough to give me $100,000 to invest in 20 startups, hah! That’d be hysterical. $5k on a bet? 20 times? 

  3. Amazing. Bookmarked. Gonna look at this everyday till we launch.

  4. Better idea. 

    Pick a set of crazy obtainable numbers. Set those. Look at your progress towards the metrics every day until you launch. 

  5. “Same exact idea. Better execution. Big winner.”
    Thanks for including that quote. So many people think a unique idea is all you need. Execution is definitely where it’s at. 

    “Building a great company is hard. But it’s worth the effort.”
    Damn straight.

  6. I’ve never founded a great company. But I’ve had the pleasure of working for a few. Trilogy Software in 1997-98 was a special place. And Reactivity 1998-2001 were very special places with very special people.
     I am stoked to see the beginnings of great companies in Canada. Rypple, Dayforce, FreshBooks, Idee and others. Lots of great examples. 

  7. Basics. Focusing on the basics. Fine line between what one think he/she “deserves” vs. the efforts that generates results! Lowered expectations by @davidcrow Just go out and deliver, crazy concept hen? 

  8. “Raising money is hard. Building a great company is hard.”

    I lived under the communists for a good part of my life. During that time everything was hard. That’s why I left.

    Canada has a harsh environment for small startups. In the US is not like that. That’s why I am pursuing opportunities in the States and Europe.

    “Let’s go show the world that we can build bigger, better, badder startups.”

    Fine words. But you are talking to the wrong crowd. This message should be addressed to investors, to financial companies, instead of startup owners, they need to close the gap, they need to understand that there is an increased competition and smart people will simply bypass this environment if it is too harsh.

  9. The American dream is a great one. The US has a large population, the economy that has driven the last century, and a culture that supports risk takers. Coupled with gravity that is Silicon Valley, it’s a hard to fight. Moving to SF or NYC won’t necessarily be any easier to do things, but it changes the odds for happenstance. 

    The point is that going to SF/NYC/London/Dubai/etc is one path. You CAN build a global company in Moncton, NB or Waterloo, ON. And what entrepreneurs need to do is aim for a massive success. Location can change the odds, make certain things more likely to happen. But it is not a guarantee of success. 

    If you want to build a massively scaleable high growth startup, you need to start acting like one regardless of where you are based.

  10. Very well said. Hard to argue with every point you made.

    What would help is if each VC investment discloses exactly why they invested, i.e. the real reasons, not the stuff they say in public.

  11. “The wrecker of unfettered dreams. The resetter of expectations.” This made me chuckle. Good post. Much needed. 

    I often hear from first time entrepreneurs explaining their concept to me and telling me how it will “revolutionize” or “disrupt” an entire industry, followed by an explanation of why they haven’t raised any funds. Usually it goes something like this… “we haven’t raised money yet is because we don’t have connections. If we could just talk to the right people, it would be so easy, they’d invest in us in a heartbeat.”I just smile politely and nod, because I am tired of being the villain that tells them they don’t have funding because they are nobody and don’t have a track record of building anything… not even a team. So why the F*** would anyone invest their money is their dandy concept.

    Heck, even I couldn’t raise funds easily (if I started something of my own) and I’ve helped several startups!

    So yes, most definitely some entrepreneurs live in a bubble. Some of them are bold enough to think the bubble exists only in the Valley… so they move there. But regardless, i think many forget what really goes into raising funds and raising again in order to stay afloat.

    Thanks for highlighting this (yet again) Crow.

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