top 10 lies of entrepreneurs and other lists for startups
Kawasaki is the CEO of venture capital investment bank Garage.com, and
an entrepreneur, former Chief Evangelist for Apple Computer, columnist
for Forbes magazine and author of numerous books on business and
technology. On November 14, 2000, he came to this Morino Institute
Netpreneur.org Coffee & DoughNets meeting to discuss the Top Ten
Lies of Entrepreneurs, then set the new standard for content by adding
the Top 10 Lessons of PR, the Top 10 Rules in the War for Talent and
the Top 10 Principles of Business Development.
made at Netpreneur events and recorded here reflect solely the views
of the speakers and have not been reviewed or researched for
accuracy or truthfulness. These statements in no way reflect the
opinions or beliefs of the Morino Institute, Netpreneur.org or any
of their affiliates, agents, officers or directors. The archive
pages are provided "as is" and your use is at your own
2000, Morino Institute. All rights reserved. Edited for length and
fran witzel: introduction
morning. I'm Fran Witzel,
Vice President of Morino Institute's Netpreneur.org, the learning community for the
As many of you are aware, Netpreneur.org is the result of the
vision, leadership and commitment of one person, Mario Morino.
We're delighted to share with you that this weekend Mario was
recognized as the winner of the 2000 National Ernst & Young Supporter Of
Entrepreneurship Award. Mario
was cited for his work as "a mentor to entrepreneurs, providing
them with the resources they need to find support, share knowledge,
make contacts and form partnerships that will benefit their
join us in congratulating him on this achievement.
I also want to recognize some very important people from our
netpreneur community who have taken time to help us with this and
other events: Carolyn Carroll of STAT Tech; Eric Sommer of iCapture; Suzi Connor, Marcia Nutt and Mitch
Chen of Network Alliance;
Hunter Monroe of ValueSpeed, and Dawn Amore and Arika Casebolt
of Glowing Toad Designs.
Thank you for your help. We
couldn't do it without you.
On behalf of the Netpreneur.org team and today's sponsor, Imperial
Bank, it's my pleasure to welcome you to a very special
Coffee & DoughNets presentation.
It was almost two years ago today, on November 19, 1998, that I
had the honor of introducing the Angels & Revolutionaries event.
Our keynote speaker that night was Guy Kawasaki, CEO of
newly-launched venture capital investment bank, Garage.com.
Guy totally blew the roof off the McLean Hilton as he described
the “Rules for Revolutionaries” from his book of the same name.
Since then, Garage.com has helped over 60 high-tech startups
raise over $200 million in venture capital, and, now, Garage.com is
here in Washington again to give one of their two-day Bootcamp for Startups.
This morning Guy is here to share his insights and advice
again. Not only will he
talk about “The 10 Lies of Entrepreneurs,” we're also very lucky
because he will address a number of other issues that I think you'll
find particularly relevant in helping you start and grow your
high-tech businesses. We’ll
take your questions when he’s finished, but, just before that, I've
asked Guy to help explain what a “venture capital investment bank”
is by describing what Garage.com does in more detail.
Please give a warm welcome to Guy Kawasaki.
guy kawasaki: the
top four top ten lists
you very much. I am going
to try something today that I've never tried before.
I'm going to give you four speeches, because when Fran and I
met he said, “You have to do the Top 10 Lies of Entrepreneurs since
that’s what we told everybody you’d talk about, but I've seen this
other speech of yours and that would be good, and I've seen this other
speech and that would be good and people are asking for this other
speech...” So, I'm
going to do four in one. We
want to get out of here at 9:00, so we'll do four in 45 minutes.
Any one of these could be a 45-minute speech by itself, but I
thought I would set the standard for content in speeches at a
Netpreneur.org event forever.
For those of you who saw me speak two years ago, you know that
I always use the “Top 10” format so there are going to be four Top
10 lists. The reason why
I use Top 10 is that most high-tech CEOs suck as speakers.
One thing I figured out from watching these CEOs is that if
you're going to suck, at least the audience can track progress through
your speech if you use a top 10 format. I hope you don't think I suck, but, in case you do, at any
given point you can just do the math.
But remember to subtract from 40, not from 10, okay?
What’s that, Fran?
We can go to 9:30? I
can take Q&A. I can
do a lot of things. I
could add a fifth speech if we go to 9:30.
Okay, here's the first one.
the top 10 lies of
Garage.com is a venture capital investment bank.
This means that we help high-tech startups raise venture
capital, and, in that process, we view roughly 12,000 business plans a
year. We also meet with
probably 500 to 750 entrepreneurs a year and get pitched by them
one-on-one. We've seen a
lot of plans and we've been pitched to a lot of times, so we've been
told all the lies of entrepreneurs.
I have narrowed down these Top 10 Lies of Entrepreneurs to tell
you what the most common ones are and what people are thinking when
you tell them. I want to
give you a solid basis for not telling these lies.
By the way, many people have asked me to do the Top 10 Lies of
Venture Capitalists, but I have never been able to narrow it down to
10. Lie number one is:
projections are conservative.”
you look at our financial statement,” says the entrepreneur,
“You'll see that in year three we'll be doing $50 million, and that
is probably a faster ramp-up than Compaq, Apple, DEC, Alta Vista,
Inktomi, Yahoo!, E*Trade, everybody.
We're going to outdo all those companies because our
projections are conservative.”
Whenever a sophisticated investor hears this lie, he or she
thinks, “I will multiply by 0.1 and add three years.”
That’s just so you know the math.
Never say you're going to do $50 million in year three because
everybody says that. Literally. Every
plan says it. I think you
all buy the same Excel template, frankly.
It doesn't matter if you're in wave division multiplexing,
fiber optics or shrimp farming software, everybody says $50 million in
says that our market will be $50 billion by the year 2003.”
try to validate their market by using an outside source such as IDC, Jupiter or Yankee Group. They’ll say that IDC (or whatever firm) says their market
will be $50 billion by the year 2003.
Well, when it comes to consulting firms, every
study they have says that every
market will be $50 billion by 2003, so this is kind of a meaningless
statement. You should
never use external data to validate your market.
Sophisticated investors have a very good sense of the size of a
market. If you try to
spin this lie, it will be the fifth time that day they hear that this
particular market is $50 billion.
It will hurt your credibility.
“[Amazon.com] will sign our
contract next week.”
Yahoo!, E*Trade, Excite or any major player for Amazon.com. Pick a company. Everybody
says this. Behind it is
that no one in the new digital economy can say no.
How many of you have ever gotten a rock-solid “no” from
anybody? It never
You have? All right.
It seldom happens
because people in the New Economy are just chicken.
They don't want to say no.
They always say, “Well, it sounds very interesting.
We'll get back to you.”
When entrepreneurs hear that, it parses in their brain as,
“They're going to sign our contract next week!”
If you're going to say something like this, if a company is really
going to sign a deal with you, wait until the deal is signed and then
tell people about it. Nothing
is worse than telling someone that a big deal is going to happen and
then it doesn't. Under-promise
“Key employees will join as
soon as we get funded.”
fourth lie is, “As soon as we get the $3 million from you, we have
these key employees who work at Microsoft and Oracle making $2 million
a year, but they're going to quit and join our two-person operation
that has $3 million in funding and doesn't have a product yet.”
It’s kind of a stretch for the imagination.
If you tell this lie, be sure that when they ask for the names,
email addresses and phone numbers of those key employees, they really
will say that they're going to quit, because, in most cases, they'll
say, “Oh yeah, I met them at a Netpreneur.org event.
Seemed like interesting guys.”
That's not going to lead to funding, so don't tell this lie
unless it's absolutely true.
“We have first-mover
this day, Garage.com is receiving business plans for selling books
online that claim they have first-mover advantage.
Very few people have first-mover advantage.
Even if you do, I would make the case that first-mover
advantage doesn't matter. It’s a really tenuous thing, amounting to
maybe five weeks of advantage. I
would also say that very few people truly do have first-mover
advantage. I can't tell
you how many business plans we get that say they're the first-and-only
people to be able to do something, and it's the fourth plan we got
that week in the same space. At
the very least, learn how to use Google, okay.
Type in the keywords, find out the other 88,795 matches in the
“Several VCs are already
sixth lie is that you have these VCs all teed up; they're all ready to
sign; they're ready to rock and roll.
What happens when you tell this lie is that the potential
investor will call the other VCs, and the other VCs will say, “Oh,
yeah, about three weeks ago our partners decided to pass on that
investment. I guess I
forgot to get back to the entrepreneur.”
That happens time and time again.
There really are only two states with a VC¾either you have a term sheet or they're not interested.
If you don't have a term sheet, assume they're not interested;
I don't care how positive things look or how much they tell you that
it's very strategic. One of the best ways to say no is to tell you, “As soon as
you find a lead investor, we're in.”
That equals no. Just
understand VC-speak. That
equals, “No, we're not interested.”
“[Oracle] is too slow to be
seventh lie is: “Oracle, Microsoft, Inktomi, Yahoo!, E*Trade, Cisco,
PeopleSoft, they're too big, too dumb and too slow to be a threat to
the two of us working in our garage.”
You know something? There's
a reason why Larry Ellison flies in a private jet and you and I are in
coach on United. It is not because he's stupid or slow or not aggressive or
because he doesn't have a great team behind him. He has all that stuff. Oracle
is a big threat.
Microsoft is a big threat. All these
companies are big threats. Even if you truly can eat Oracle's lunch,
you should never say it because no one is going to believe you. You will reduce your credibility.
“We’re glad the bubble
many of you are glad the bubble has burst?
You are? You're a
Basically, nobody is glad that the bubble has burst.
Life is better with Nasdaq at 5,000, okay?
Birds sing better, the sun is shinier, the sky is bluer. Everything is better with Nasdaq at 5,000.
Nasdaq is not at 5,000, so you have to spin this into something
good, like “valuations are more rational” or “VCs are seeing
fewer stupid ideas and they can spend more time with my company.”
You can spin it, but, let's face it, it's really not true.
You're not glad the bubble has burst.
Say that you're in the educational toy business.
I've seen companies like that where prior to April they would
say, “eToys' market cap is $2 billion and we sell only educational
toys which is about a fifth of their business, so we should be roughly
$400 million. Maybe $400 million is a little too aggressive, since we are
two people in a garage right now, so we'll take a 90% markdown.
Maybe pre-money is $40 million.”
If you go from $2 billion to $400 million to $40 million, you
think that’s a great pre money valuation.
Oh, except that eToys, by the way, is now worth $300 million.
If you use the same math, you're now worth about $100,000.
You're not glad the
bubble has burst. Trust
“Our patents make our
than medical devices and biotech¾I'll
grant you those¾I would say that patents are more or less useless.
They do not protect you. If
you have something worth copying, your patent will be worked around.
If you don't have something worth copying, then why get a
patent? We have seen very
few companies that truly have patented technology that is truly
defensible. The key to success for most high-tech companies, I
believe, is implementation, not intellectual property protection.
If you want to be a defensible company, hire engineers, not
“All we have to do is get
1% of the market.”
is the so-called “Chinese soda test.”
The Chinese soda test is: if just 1% of the people of China
drank our soda every day, we would sell boatloads of soda and be so
rich. The problem is, it's not that easy to get 1% of all the people
in China to drink one soda a day.
It's not that easy to get 1% of any market to use your product.
This kind of reasoning goes along with lie number two. “All
we need is 1% of the market and IDC says it's going to be $50 billion
by 2003, so how hard could this be? You ought to fund us.”
Well, as I said, getting 1% of a market is hard, and it also
shows that your perspective is wrong.
People want to fund companies that want 99% market share.
Garage.com is looking for entrepreneurs whose greatest fear is
the Department of Justice’s Antitrust Division 10 years from now.
If you come to us and say, “Our projections are just wild.
In our wildest dreams, we don't know what the size of the
market is, but we know that we're going to dominate 99% of it, so
we're afraid of the Department of Justice.”
We are interested in that deal, not the ones who say, “All we
have to do is get 1% of the market.”
Now, I told you these Top 10 lies for one very specific reason.
If you're going to tell lies, and sometimes you have to in a
presentation, at least tell different ones.
Now you know the 10 lies that every institutional investor
hears every day, so tell different ones.
That's speech number one.
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