Hard Truths

I recently had the pleasure of sitting down with veteran entrepreneur and investor Kent Lindstrom, partner at 8 Bit Capital, for an enlightening conversation on my podcast.My next podcast guest will be Guy Kawasaki on March 7th. I had the opportunity to speak with him about his new book Think Remarkable and am excited to share this episode.With firsthand experience as the former COO of Nuzzel (sold to Scroll) and Neo Innovation (sold to Pivotal Labs), as well as serving as the CFO and CEO of pioneering social network Friendster, Kent offered invaluable insights into Silicon Valley, lessons learned from his past ventures, and sage advice for founders.In this wide-ranging discussion, Kent provided transparent reflections on topics ranging from the realities of failure, criteria for investing, qualities of great founders, board dynamics, fundraising storytelling, and more. Read on for highlights from our conversation and key takeaways applicable to entrepreneurs and startup enthusiasts worldwide.Learn Through Small FailuresKent believes founders should embrace failure as an opportunity for growth and leverage small failures to gain experience.* You don't learn anything from success, you learn from failure.* Learn through hundreds of small failures and lessons - a hiring mistake, spending too much time on a product, trusting the wrong person.* Failure provides experience - like becoming an investment banker through years of practice.* Learn from others' failures when possible by seeing what mistakes to avoid.* View failures as steps closer to eventual success rather than the end goal.Advice for First-Time FoundersKent's key advice is to get into the market early and use customer engagement to drive rapid product iterations. This avoids over-engineering solutions without market feedback.* Get your product in front of customers/users as soon as possible.* Actively seek customer feedback and iterate quickly based on it.* Avoid stealth mode and lengthy private beta if possible.* Demonstrate urgency in putting your solution in the hands of users.* Don't spend too long perfecting the product without real-world validation."You don't learn from success. You learn from failure. Use the small failures as stepping stones to growth. Let the lessons guide you closer to success." — Kent Lindstrom Pitch Red FlagsThe biggest red flags Kent sees are around the founder's experience and motivation, market potential, and urgency getting to customers quickly. Pitches focused too much on the product details rather than the big vision are also concerning.* Lack of urgency getting the product in front of customers - stealth mode or lengthy private beta.* Founder with a history of frequently changing jobs - entrepreneurship used as a lifestyle solution.* Absence of a large market opportunity, founder-market fit, and founder grit/determination.* Spending too much time pitching the product to customers rather than the investment opportunity.* Expecting lots of help and advice from investors rather than leading.Founder Removal Led to Friendster's DemiseKent believes removing the founder too early was Friendster's biggest strategic mistake that led to its downfall.* The biggest strategic mistake was getting rid of the founder really early.* Friendster took off faster than anything in history under the founder Jonathan Abrams.* After the founder was removed, getting the chemistry and drive back was almost impossible.Key Lessons from NuzzelKent believes Nuzzel exemplified building a great product that users loved but in a market too small to enable venture-scale outcomes.* Despite strong product-market fit and passionate users, Nuzzel had a small addressable market.* Even the top news aggregation app cannot build a big business in a limited market.* Users loved Nuzzel and used it daily, but it lacked viral growth potential beyond hundreds of thousands of users.* With today's standards, consumer products require tens of millions of users to be venture-worthy.* The key lesson was that Nuzzel was a product success but lacked a sufficiently large market opportunity.The Role of IntuitionIntuition built from extensive entrepreneurial experience helps assess founders' abilities in ways data cannot capture fully. It complements analytic diligence.* Intuition comes into play when evaluating the founder's abilities and motivations.* It stems from hundreds of hours working with and advising entrepreneurs over time.* Pattern recognition from experience allows intuitive judgment of a founder's grit and potential.* It's not analytical like assessing market size, but taps into intangibles from first-hand entrepreneurial exposure.* When Kent and his partner's intuition aligns on a founder, it gives confidence to invest despite unquantifiable qualities."When it comes to evaluating founders, data will only get you so far. There are intangibles that come from experience - the intuition built over years in the trenches with entrepreneurs. My intuition about a founder’s grit and potential stems from hundreds of hours advising and observing. It’s an invaluable complement to the analytics." — Kent Lindstrom Advice to My Younger SelfKent would tell his younger self to maintain the enthusiasm for building companies, but have a faster trigger in deciding when to shift gears away from doomed ventures.* Don't change anything about starting companies - it's amazing.* Be a bit quicker to recognize when it's time to move on from ventures that aren't working. Get full access to Startup Istanbul at newsletter.startupistanbul.com/subscribe