The Gospel of Startup, According to Sequoia
bryan@jbryanscott.com
Google. PayPal. Apple. These are a few companies backed by venture capital firm Sequoia Capital. All three were consumer startups, reached exits of over $1 billion, and are still profitable companies today. Moreover, all three companies dominate market share in at least one core offering (web search, online payments, and portable music players, respectively).
Sequoia rocks. They are the best of the best. They are the envy of every venture firm.
What is Sequoia’s secret? How do they pick winners time and time again? As entrepreneurs, how do we build companies that meet Sequoia’s threshold for funding?
Ironically, Sequoia answers these questions in plain English on its website. Sequoia lists 10 “Elements of Sustainable Companies,” which you can view here: http://sequoiacap.com/ideas/
All 10 elements are excellent, but I’d like to focus on just three: Clarity of Purpose, Large Markets, and Team DNA.
Clarity of Purpose is essential. Good entrepreneurs know their market first, and then create an offering to fit a specific market need. The best startups focus on a singular problem and provide a singular value proposition. Google started out with one simple offering: a search engine that delivered better, faster results than any of its competitors. The customer experience with Google is simple, quick, and delightful. In the words of Albert Einstein, “Everything should be made as simple as possible, but not simpler.”
Market size is one of the most difficult questions that startups face. Large Markets only matter if you want to build a large company, but even small business entrepreneurs need to size their market to determine investment and breakeven. Be specific about who your customers are, how you will convert them, how much it will cost to convert them, and how much value they will add once converted. Remember that venture capital investors require large markets with fast moving, rich customers.
Finally, Team DNA. Building an A-level team is vital. As Sequoia points out, all founders must be A-level: “the smartest or most clever in their domain.” But Sequoia omits one crucial trait inherent in the Team DNA of all their investments: passion. Life inside a startup is not always fun. If you can’t cope with 80-hour weeks, sleepless nights, and crushing defeats, you don’t belong on the founding team of a venture-backed startup. If this sounds scary, don’t do a startup. You will fail. Opening a bagel shop is a perfectly acceptable alternative. The only way to get through these challenges is to love what you do. When you love what you do, 80-hour weeks don’t feel like work, and failures are merely insignificant speed bumps along the path to success. As the first founder with only an idea, partnering with people who share this DNA is vital.
As partners with entrepreneurs, venture capital firms should seek first to build companies. By synthesizing over 30 years of startup experience into one short list, Sequoia benefits all of us – not just the next Google, PayPal, and Apple.
Bryan Scott is a forth-year undergraduate student at the
University of Florida studying Finance and Entrepreneurship. He has worked on
or with the founding teams of six startups while in undergrad. He has interned
with Inflexion Partners, a venture capital firm based in Florida, and currently
interns with TechCrunch, the most authoritative technology and startup blog on
the Internet. Bryan is also Co-founder and Chief Technology Officer of Park on
the Fly, a UF-based startup that aims to replace the parking meter. Bryan
welcomes your feedback at bryan@jbryanscott.com.