Discover more from Rafael Alvarez
The Badge of the Entrepreneur
Less talk, more walk
The sheer amount of activity in Medellín promoting entrepreneurship is unparalleled. Students want to be entrepreneurs from the start, employees look enviously at colleagues who quit their jobs to go start their own business, and entrepreneurship event attendance is on the rise. As one might expect, different organizations are eager to create more and more spaces for the "industrialists" of the future to meet and connect.
Throughout my career, I’ve run the gamut of being a member of the audience, a guest speaker, on the panel of judges, an investor, and an advisor, and I’ve heard countless pitches by entrepreneurs where I can’t figure out whether they’re looking for investment or conducting an experiment in defending the absurd.
In the two to three years of attentive listening and rigorous note-taking on presentations of entrepreneurs, I’ve developed a brief method to rapidly filter out those who pretentiously sell hot air from those who quietly take action.
The first and most important thing is to not let the entrepreneur start the pitch before you (the advisor or investor) first conduct a brief quantitative interview. It will take no more than 60 seconds and will give you the appropriate level of understanding of the relevance of the team you have in front of you:
How long ago was your startup formally constituted?
How many partners are there?
How many of them worked full-time last month?
In addition to these partners, how many other people worked full-time last month?
How many sales did you achieve in the last three months? Or, alternatively for product companies,
How many active users did you have in the last month? and,
How do you define an active user in the month?
After this short interview, the presentation can begin. Now the next 30 minutes can focus on structural issues and not on the sale of hot air, big ideas, large market sizes, scalability, iterations, etc.
With this small I.D. badge that all entrepreneurs and presentations should have as their first slide, the time and efficiency of many businesses can be maximized. Many potential entrepreneurs may likely receive more help if they start with a little humility, and the empathy that can grow by addressing core issues the rest of the time may be more worthwhile even than getting the investment.
Knowing when the idea was established gives you a picture of how seriously a founder believes in what they’re doing. Though age does not necessarily equal wisdom, in entrepreneurship it’s definitely a symptom of courage.
The number of additional full-time staff is a sign that there is already a consolidated team and probably income.
Lastly, the sales or active users of the last month shows you if they are able to get to the market with a product that solves a real problem, or if you’re simply looking at a PowerPoint presentation on a business that doesn’t even have a prototype or that was validated by letter of intent (I don’t know who came up with that).
All the questions are designed so that their answers must be based on quantifiable facts of the past, therefore they are precise, short, concrete, and escape opinion and subjectivity. If they don't know the answers, you have before you someone trying to sell you something that even they don’t understand.
By using this method I’ve been able to narrow down my conversations to only serious teams who’ve already taken the initial step that they must take for themselves.
It is completely naïve (and yet, quite common), to think that the investor or advisor will help you quit your job, create your company, and make the first sale—steps that only you, the entrepreneur, can take. The entrepreneur is the only one who can save up, quit their job, sell the car or motorcycle, lower living expenses, and tighten their belt during the first years of working towards what they believe in.
It's also important to remember that at some point we all start from scratch, and that the answers to these questions must be brutally honest so that dialogue can continue on the same page. The entrepreneur's badge is not discriminatory. It’s a baseline for the conversation to occur at the level that the venture is really at, and to receive the help, advice or money according to the capabilities and time of each team.
Below I will present what in my opinion are the most common characteristics of pseudo-entrepreneurs who today ardently seek funding in these investor meetings and the reasons why they sometimes generate distaste:
Weakly constituted teams: They’ve known each other for a short time; they all work remotely, they’ve never actually worked together; they’re a group of friends who came up with the idea but only one of them actually does all the work; they lack the basic skills in sales, production and management required by a company.
Multiple simultaneous ideas: Absolute diversification of ideas, approaches, products, and segments, all in initial stages of the company; they have up to two and three divergent business lines with virtually no turnover or users. Some go so far as to have several startups running simultaneously. The idea of do-over has given them an excuse not to persist, and they don’t even have a firm conviction that something can work.
Minimal dedication: They work simultaneously in another company; they work part time; they work flexible hours, or even worse, they consider that tracking work time is slavery and not a way to understand costs, maintain fairness and objectively promote the only way in which results can be achieved sustainably: effort and sweat, not ideas.
Astronomical money requirements: The de facto standard for a pitch to a venture capitalist or an angel investor is to ask for $1M USD for software development, advertising, equipment, offices, salaries, and patents. The founders seem to think that having passed the screening process gives them carte blanche to ask for these sums and be treated seriously. However, I find it vulgar to ask for such elevated sums of money when the arguments that support it are mere speculations.
To illustrate how ludicrous this is, of the 420 technology companies in Colombia (ISIC codes K7210, K7220, K7230, K7240, K7250. K7290) only 20 achieved earnings after tax above $1M USD (data from 2013, with the dollar calculated at $2,700 COP) and their average is $5.5M USD. If we discount IBM, which is a singular anomaly at the top of the list, the average drops to $4.2M USD. That is, you’re asking between 20% and 25% of the yearly profits of the TOP 20 Companies in Colombia, or half or more than the profits the remaining top 400 companies make in a whole year. In short, what they ask is ludicrous not only because it’s a lot, but because investors with an origin in IT are actually quite poor. The place to ask for those figures is Silicon Valley, oil companies, banks or mega constructors who may not have smart capital.
I believe that every entrepreneur should be made to wear an I.D. badge at these social events. Just as rappers were distinguished by their baggy pants or skateboarders by their jeans dragging on the floor, every self-proclaimed entrepreneur should wear a badge with large, visible data about his company. He should wear several badges if he’s had several startups.
That way the truly remarkable people would stand out and we’d know who to go learn from, while the future-Mark-Zuckerberg big talkers would realize they need to shut up and listen more.
If nothing else, this I.D. badge would give context to know exactly who’s talking. We’d know if this highfalutin “Emissary of Entrepreneurship” is speaking from the shoulders of academics, or from the bloody hands and scraped knees of experience and results.