Ricardo Anguiano, my friend and former colleague, recently expressed frustration over the fact that life wasn’t long enough to be good at everything. What sort of cruel universe would deny him the ability to play scratch golf, perform as a concert violinist, and serve on the City Council, all while excelling at his job? Why should he have to choose?
I recently met an obviously talented entrepreneur (lets call him Albert) and asked him about his goals for his nascent business. Was he looking to make an adequate living with more control of his day-to-day existence than he’d have if he took a job for a big company? Would he prefer to have a business that steadily provided him a $1M/yr. annuity for life, or would he rather forgo the income stream for a chance to be a multibillionaire icon like Bill Gates, Jeff Bezos, or Mark Zuckerberg? His answer was that he’d like the chance to go big, but he wouldn’t want to endanger the business to do it. When I asked whether he had plans to raise a larger VC round after the initial angel round, he said he wasn’t sure; he thought an angel round would allow the company to reach break-even, at which point he could re-evaluate his options. In other words, he didn’t want to make a choice.
In mathematics, the Axiom of Choice is a mildly controversial principle of modern set theory that says that you can simultaneously choose elements out of any collection (even an infinite collection) of non-empty sets. But, my version of the Axiom of Choice is simpler: you always have to choose.
As an investor in start-ups, the worst-case scenario is not funding a company that fails losing all your money. By way of illustration, I have a friend who invested $100K in a successful company a decade ago. The company makes money, and the founders draw good salaries, but they’re not inclined to seek an exit. My friend has effectively lost his $100K — but he gets to keep the frustration of trying to convince company management to sell. That’s the real worst-case scenario: a company that doesn’t sell, go public, or die. A business that can operate profitability forever may well be a great business for its owners — but it’s a horrible business for the investors.
Thus, when an investor talks to an entrepreneur, the investor wants to hear that the entrepreneur is going to try to grow the business aggressively, and, when the time is right, sell it. In other words, an investor wants to create a scenario where either (a) the company becomes so valuable that the founders want to sell, or (b) the company cannot survive independently and is thus forced to sell. I told Albert that he would probably have to choose: raise capital and try to go big, or play it safe without the benefit of other people’s money. I told Albert that he certainly shouldn’t expect that Sand Hill Angels would invest in his business if he was going to be satisfied running a mildly profitable enterprise forever.
Ironically, I built exactly that kind of business. CodeSourcery started as a professional services business and, as such, was profitable in its first quarter — and every quarter thereafter. Revenue and profits grew every year, and the business quickly became my family’s most valuable asset. It wasn’t a large business on the scale of venture-backed companies, but it was large enough to make my wife and myself financially independent. Whenever we considered taking outside investment, we realized that we’d have to adopt a riskier business plan to provide investors with a good opportunity, and we weren’t willing to take that risk.
I stand by the decision that we made about CodeSourcery, and I told Albert that I would support him if he chose a similar path. Investors and entrepreneurs have a fundamental misalignment of interest; the entrepreneur always has all of his or her eggs in a single basket, while the investor never does. The investor can make several risky investments and end up with a portfolio less risky than any of the individual investments; the entrepreneur cannot. So, investors tend to desire greater levels of risk (with greater levels of potential reward) than entrepreneurs would choose on their own. Entrepreneurs should feel free to refuse to take on risks with which they are not comfortable — but they should also understand that it may be difficult to raise money from investors if they do not offer enough potential return. Entrepreneurs need to make that choice, and they should do so consciously.
More generally, I’ve gradually come to the conclusion that success in business is largely about making choices. Whenever I’m working on a mission statement for an existing organization, I’m not satisfied unless the mission statement clearly excludes things that the organization currently does. The mission statement should help the organization choose; it has to say that somethings must be done, while other things must not be done.While every public company wants to increase shareholder value, “increase shareholder value” is not by itself a useful mission statement; it doesn’t tell the company what not to do. You can choose to make tasty, artisinal chocolate, but if you do, you should realize that you’ve chosen not to maximize revenue. You can choose to be a broad-line supplier rather than a specialist, but you should know that you’ve chosen to provide the most attractive integrated solution, not the best individual components. You have to choose — and you should understand your choice.
When I think about people struggling to reach their goals, it seems to me that it is most often a failure to choose — rather than a lack of ability — that has caused the problem. You can be both a competitive marathoner and a successful senior manager, but it’s very hard to be as good as the best marathoners and also as good as the best CEOs. Do you also want to be a good spouse, a present parent, and volunteer in your community? Those are all good goals, but you have to choose. You can choose to reduce your running commitment in order to work on your career, or choose to spend more time with your family even if it costs you a promotion, or choose to do a little of everything, knowing that you’ll not be able to do any individual thing as well as you would like. All of those choices are reasonable. But, if you pretend that you don’t have to choose, or if you just let things happen, you will disappoint yourself. You need to choose.
Ironically, Ricardo — my friend who finds the universe’s imposition of choices frustrating — is himself is one of the people who taught me how important it is to make choices. When he and I would meet to define his tasks for the next week, he would often tell me that he couldn’t accomplish all of the things I asked him to do. He forced me to choose. And, while that was sometimes frustrating, that meant that Ricardo forced me to think carefully about what was most important. What was a must-have — and what was just a nice-to-have? I had to choose.
For the past several months, I’ve been spending time on three major endeavors: (a) trying to be a good husband and father, (b) working on a new business, and (c) learning a lot about start-ups by talking to investors, entrepreneurs, and other business people. Originally, (c) was a subtask of (b), but it’s taken on a life of its own. I’ve learned a lot — and I’ve realized how much more there is to learn. But, my primary goals remain (a) and (b), and (c) is now interfering with (b). That means that I have to make a choice. I’m not going to sacrifice my family, so I’m going to back away from some of my attempts at educating myself in order to focus on building a business. Choices are as frustrating for me as they are for Ricardo, but, as he and I both know, we have to choose.