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Startup School – The blue screen of death

The marked-for-death syndrome is quite common in first- and second-time ventures. Cookaracha Guides, my venture number two as well as a Type I failure, was done and finished with within three months. The idea was to give paid advice to aspiring MBAs and business school students before, during, and after the school application process. Attract them with original content, sell a little advertising, give advice, part free, part charged. The opportunity cost was minimal due to my status as a full-time student and the overall financial investment was small since there wasn’t anything in the bank for me to invest in the business (had not discovered credit cards then). Employee headcount and operating expenses were Fawzia and me working from our subsidized student apartment off Broadway in Manhattan and the business school library at Columbia University.

Even Amin, our (fresh from the mint at Roosevelt Hospital) son had made his significant contribution by allowing us to claim a two-bedroom rather than a single, one bedroom of which was immediately usurped as the global headquarters of Cookaracha Inc. Internet access, email, faxes, photocopying, and conference rooms were also provided courtesy of the business school.

The downside was limited to the unpaid hours Fawzia and I spent on getting the content together and up and running on the student web server. I took it on because I thought there was an opportunity. I was wrong; it died because the few who came didn’t want to pay and while I was busy getting things together, three dozen other sites had already mushroomed with similar themes. There was little I could do to differentiate the Guides from the site next door. Lesson number one—don’t walk into a crowded space where there are no screens on the windows and no doors at the entrance.

Avicena, venture number three, location southern California, circa mid 1999–mid 2001, lasted all of two years. Although it represented a financial loss measurable in multiples of my net worth, it was also the best education I ever had. Things were a little complicated this time because we had taken in $70,000 in friends’ and family’s money and an incubation agreement bartering 20% of equity for approximately $250,000 in services and facilities. We had employees and payroll, a production website, servers, dedicated broadband connections, beta customers, venture capital commitments, maxed-out credit cards, but no revenues.

The business model was fairly simple. When we finally got around to implementing it, we found that business models are far easier to write, are most difficult to execute, and are rarely simple. Realizing and accepting this for an

entrepreneur is equivalent to the loss of innocence for a teenager – the most important lesson that can only be learned the hard way – and never be taught. One part labor arbitrage, one part technology, and one part branding and distribution sounds neat on paper but if you can’t do it all before cash runs out, lo you have a shot at writing a book.

In the short span that we were around, we took care of technology execution, content, off shore outsourcing, business processes, lead generation, and engaged Society of Actuaries, Swiss Re, ERC Frankona, Manufacturers Bank, Sumitomo Mitsui, Reuters, Yahoo, and Pearson Publishing in business development discussions.

New York, Boston, Chicago, D.C. and Tokyo. I learned as much about missed flights, airports, unplanned transits, layovers, taxis, red-eyes, and hotel food as I did about selling. Despite the promise in the idea, we hit the screen because stupidity knows no bounds. Also true for greed and arrogance—we were stupid, greedy, and arrogant, which, in a different order, may not have been such a bad thing. If only we were greedy first, made out like kings, and then turned arrogant and stupid. We began with arrogance.

When we pulled down the shutters, I thought it would be a while before I would think about venturing out on my own again. Three ventures in a row had left me a little breathless and strapped for cash and I didn’t want to get back to working 140-hour weeks just so that I could go broke again. Why work so hard to come back full circle when you were already there?

In less than 18 months, I went back to the grind of working without a paycheck and in another three years had paid off most of what I had begged, borrowed, and stolen to keep things going during the final dark months in California. I was lucky to be 30, with a supportive family who put three meals on the table, didn’t ask difficult questions or charge me for rent. A different dealer and a different hand of cards and it could have just as easily been a Type III tailspin. The last set of lessons that I learned from the Guides and Avicena boiled down to:

a) Failure is a more discerning and forgiving teacher than success. Ounce for ounce, you come out leaner, meaner, and wiser. As long as you run with honor, cross the finish line, and show up for more punishment the day after, you will be at peace with yourself and the world.

b) As a first-timer around the circuit, you don’t know enough to pick the right car, the right deals, the right tires, the right team, or how to take the tightest of turns. Regardless of your intelligence, commitment, and capital, you

are doomed to fail. There is a blue screen of death and it’s going to get you because the odds are stacked against you from day one.

c) Best to do this when the stakes are small and no one is watching. It helps if you are young and strong or have the heart and stamina to recover and take another shot later on.

The real question then, as a member of an audience once asked me, is, “If failure is so grand, common, inevitable and honorable, why worry about it all? It is going to happen so why bother studying and analyzing it? Just sit back and enjoy the ride, right?”

Ten years ago when I was a warm-blooded party animal brimming with confidence in my abilities to change the world and survive adversity, I would have agreed. At 35, though, I have a slightly different view.

I think entrepreneurs by definition burn out a lot sooner than ordinary human beings. In fact, I would even venture forth, without any scientific, statistical, or academic validation, that the half-life of a typical business founder is around 40 years. After 40 you slow down, get riled easily, have more personal, financial, and family responsibilities, and, generally speaking, are much less reckless than you were in your earlier years. In a field that thrives on risk taking, you want to play it safe. If you make it financially before or somewhere around this cut-off date, you can put aside your nest egg and go back to being reckless. If you don’t, there is a good chance that you will switch to safe mode. I believe the final cut-off age will vary across cultures, regions, and social boundaries. Having said that and assuming that you have been working since you turned 23, that gives you a window of opportunity of about 17 years to make it happen. There will always be exceptions to this analysis; look at the 80-year-old grandmothers making a fortune selling cookies on eBay or middle-aged first-timers hitting jackpots with best-selling fat reducers and crispy bacon toasters.

If you assume for a moment that the 17 year window of opportunity exists, then how would you proceed? If an average new venture takes four to six years to pan out and reward investors and founders, that gives you just three to four rolls of the dice. On the fourth roll, you are out of the game. Is there anything that you can do to improve the odds?

I can think of two. You can roll when you are absolutely sure that you will have a winner or you can cut down the average time per venture. The problem is that a new venture will take four to six years to compensate you for your original belief, commitment, and effort. There is not a lot of room there for you to compress the time taken before you break even. The one thing that you can cut down is the average time per failure. Put rather simply, fail quickly or not at all.

Avicena shook me up. Amin, our two-year-old, had allergy indications and we could no longer afford health insurance. In a year, I had succeeded in gathering more debt than my parents assumed and paid off in their entire lifetimes. The four years it took me to pay off those obligations were a welcome penance for my behavior. But they also made very clear that the years that it took me to sink and recover came from a reducing pool of time that I could never refill. I had one more roll of dice left that expired as soon as the clock hit 40. It was also clear that if I decided to roll, I had to make this one count or say goodbye forever to my entrepreneurial dreams. With a wife, two kids, and a third on the way, Mr. Farid, it was about time that you woke up and did something more productive and financially rewarding with your life.

In my mind, the question became, “Is there a litmus test that can tell you upfront if the blue screen of death is going to get you?” Before each roll, you could simply apply the test and see if it was worthwhile to roll the dice or pass.

To design the test, you have to dig deeper into why entrepreneurs fail. Traditional literature will give you a long list of factors: environment, personal discipline, markets, business models, pricing power, competition, fraud, work ethic and execution among others; A quick read of the last few pages would add luck, fate, destiny, stupidity, arrogance and greed. But this is all macro stuff; lists that are exactly that, lists. No good for authors, users, readers, or entrepreneurs.

When I go beyond the macro factors and think about the meta dimension, in my mind businesses and entrepreneurs who fail, do so because they can’t solve three simultaneous challenges – selection, execution and balancing faith. Any screening test you define, needs to include all three factors. Let me define what the three factors mean to me and then we can take a look at the tests.

Selection

The selection problem is picking up the right business idea. The ability to decipher when to roll and when to pass. Like all selection problems, this is basic pattern recognition. If you have seen the movie once, you know how it ends. The right ideas are like seeing the same movie again and again and again. Imagine the edge you have, when you know the plot and the ending, while the competition is still trying to figure out who, why, where, when and why?

Execution

Execution is delivering on the promise of the idea. Great idea, bad execution, dead business. In contemporary literature execution in clichéd, in real life it is staying the course that gets you past GO cheaper, faster and sooner.

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