Co-Founder AI

# Qualities of a Successful Entrepreneur – Ability to Change Course (3/11)

This series began with a discussion about what I consider the most important quality: persistence. The next post was dedicated to practical acumen.

## Ability to Change Course

I’m not fond of investing in people I don’t know who come to my office seeking a preliminary agreement within 30 days. I don’t think many venture capital (VC) firms like that approach. Yes, of course, there is the mythical company everyone has heard of that came to Sequoia Capital, and the deal was ready in 24 hours. I’m sure that happens. But in most situations, a venture capitalist will want to assess your performance over time. This prompted me to write a post on how to build relationships with venture capitalists.

It’s surprising to see an entrepreneur ready to sign an agreement proposed by someone they don’t know at all. It’s like going to Las Vegas and getting married to the first person you meet without understanding what that person does for a living. Good paper (a good brand) doesn’t necessarily mean the person will be a good spouse.

Venture capitalists often tell entrepreneurs they want to see “traction” before they sit down to invest. I believe they actually want to get to know you better over some time. Partly, they’re interested in how well you adapt to the business you’re developing. Every entrepreneur starts with an idea that makes sense to them. But then your customers begin to use your products, competitors roll out new offerings, and your business partners decide to launch a similar product instead of working with you. You simply have to “change course” regularly.

The best entrepreneurs continuously receive market feedback and adjust their approaches based on fresh information. They seek advice from everyone they need, learn lessons, and make small shifts every month.

For clarity: most serial entrepreneurs in the early stages of a project know that whatever they do in the first year, by the fifth year they’ll have to do something entirely different. It might even be a completely different business or a significantly changed business model. Google didn’t know it would make so much money from paid search results. They simply copied and outperformed the Overture (formerly goto.com) website. We all know about Flip Video cameras by Pure Digital. Did you know their initial product wasn’t a video camera? How about PayPal – think you know their story? The original idea was money exchange through Palm Pilotettes! Twitter was a side branch of Odeo, a website dedicated to sound and podcasts. Initially, it was called Twttr and didn’t receive rave reviews on TechCrunch and GigaOm. Seesmic (now a Twitter client) was originally a platform for video blogs. Geni.com spawned Yammer. The list goes on indefinitely.

Outstanding entrepreneurs change course. Evan Williams, Luke Lemer, and David Sacks are outstanding entrepreneurs.

For this reason, I personally don’t fuss too much about your financial model. I’ve publicly stated that you MUST have a financial model because it serves as a compass and provides strategy, but it will regularly change during the first two years. It will change so much that after two years, it won’t resemble the original model at all. And after five years? Further changes won’t be as significant.

So for me, how you respond to market challenges, what you learn, and how you adapt are the most crucial pieces of information for me to decide whether I’ll invest in your company. Persistence is great, but if you don’t listen to the market and don’t change your behavior based on the feedback you receive, you’re hopeless. Unfortunately, if you lack practical acumen, you won’t notice market changes promptly, and the shift in course will be too late.

You need to proudly carry the flag with the motto JFDI, echoing Nike’s slogan (“Just Fucking Do It”), which means the necessity to make quick decisions and act swiftly. At best, you’ll make about 70% of the right decisions. To see the 30%, i.e., what’s done wrong, you need a wise leader. To admit mistakes and reorient people, you need a leader capable of humility. To inspire everyone to follow you while changing direction, you need a true leader. Look at what Mark Zuckerberg achieved by reorienting Facebook to update statuses to compete with Twitter. It was a magnificent pivot—Mark succeeded with Facebook because of that. The market might not have fully embraced his changes, but in hindsight, the direction was correctly chosen.

## Example

A recent excellent example is Ofer Tanz and Ari Mir. They are among the most talented young tech entrepreneurs in Los Angeles. With their company GumGum, they wanted to secure their first round of investments and aimed to build a DRM system for digital image rights holders to protect and better monetize their images. The guys surrounded themselves with great advisors like David Sacks and Mike Jones.

I liked them immediately, but the DRM system for image rights holders wasn’t convincing to me. They went their separate ways to further develop the business. In the next iteration, their business plan was reoriented to create a flexible pricing mechanism for rights holders to sell images on websites; they developed a banner platform for “hidden” images. They signed contracts with Gawker Media and the New York Post. It was more interesting but still not for me.

Two months later, they returned with investments from Crosscut Ventures, a Los Angeles-based venture capital firm specializing in early-stage projects, managed by Rick Smith and Brian Garrett. I have great respect for the guys. They also secured investments from Howard Morgan of First Round Capital, a legendary figure if you look into his biography. Hmm! It seems they didn’t stand still. They signed contracts with Glam Media and TMZ.

By the next meeting, they had launched several conceptually new products, including the ability to purchase clothing featured in images with a click through affiliate links. I didn’t believe much in this product, but the guys continued to demonstrate their ability to quickly launch and test new products, and each time I met them, I noted their progress.

Then there was a second course change (the first was moving away from DRM). Suddenly, they had JavaScript on pages visited by 40 million unique users, and they were creating innovative advertising products overcoming banner blindness. They started launching products that allowed website owners to better load third-party applications and experimenting with entirely new advertising models that increased daily revenue sevenfold in less than 30 days.

That was enough for me. I realized the guys have true entrepreneurial DNA. They were product and cost-focused. They rapidly implemented innovations and engaged customers. They changed course whenever something wasn’t profitable. Now they also demonstrated the “cash register sound.”

That’s when the SERIOUS course change happened. During the launch of new products, Ari Mir had an idea. He wrote a seven-page positioning document that essentially said: “Publishers know best how to monetize their audience. We have proven that through innovation and experimentation, you can earn much more from advertising than with Google AdSense. What if we create a marketplace where publishers can create their own ad elements and sell keywords to buyers in real-time? We’ve already proven we can outsmart AdSense, which isn’t that difficult. Essentially, publishers use banner ads that don’t offer high CPM rates, and people don’t even look at them—except maybe on very cool websites. Or publishers use Google AdWords, where they’re limited by Google’s ad formats and the use of contextual links. Both models work for some and don’t for others. What if we give publishers maximum freedom? What if keyword buyers have alternative choices besides purchasing expensive and competitive keywords from Google?”

Damn. Great idea! So the team embarked on a 60-day sprint to develop the product. During this time, we decided to invest both in GumGum and in this new product line, which later received the name Bedrock. Then we conducted 30-day pilot tests with clients, which yielded impressive results. We called numerous publishers, telling them what they wanted to achieve. We spoke with buyers and understood their situation. After about 90 days, the product was given the green light, and a few months later, we announced it.

I’m proud to work with these guys. When writing the check, I told them that I was investing not only in their current business but also in their potential. Truly so.

For more insights on building successful startups and navigating the venture capital landscape, explore resources like Y Combinator, 500 Startups, and platforms like Co-Founder Ai that connect you with angel investors and private equity firms.