## Qualities of a Successful Entrepreneur – Practical Savvy (2/11)

Series initiated with a discussion on what I consider the most important quality: perseverance.

# Practical Savvy

So, you are a persistent individual who never gives up. Obviously, this isn’t enough if your startup idea isn’t viable. I don’t believe that creating great companies requires book-smart people—often, that’s just a hindrance. However, you need to be smart, and I prefer those who possess practical, real-world wisdom. There are people who just “get it”—those are the ones I seek. They instinctively understand how their customers buy and know how to inspire them. They have a sixth sense for competitors’ weaknesses. They identify favorable opportunities that no one else has yet noticed and create products that meet those specific needs.

Possessing practical savvy, most good entrepreneurs prefer to leave the office and talk to real customers instead of sticking around their desks all day, designing impressive PowerPoint slides. And when they come to my office to pitch, it’s immediately clear that they know what they’re talking about. You can literally hear the “voice of the customer” when they discuss their concept.

I often tell people that I don’t pay attention to those who were born into privilege. I like people who aren’t overly concerned with social conventions—those who, if expected to do something unexpected, don’t hesitate. For this reason, I believe many immigrants and children of immigrants excel in business. They simply haven’t been exposed to the same rules as everyone else; in fact, I’m not sure they even know what those “rules” are. Therefore, there are more people with practical savvy among them than among those who follow conventions.

If I were to write about the most important qualities of a venture capitalist (gm!), “the ability to see patterns” would be on the list. I see the same things over and over, and the ability to track and categorize them is quite important—it helps with quick analysis and learning. Thinking out loud—I’m sure this quality is also important for entrepreneurs.

So, I wrote the entire series of posts over a week around Thanksgiving, but literally every day I wake up and see examples. Here are two stories from yesterday.

# On Social Conventions

Two years ago, I was in New York and called the younger brother of one of my wife’s best friends, whom they attended the Wharton Business School with. He was working at a startup in a very popular field at the time. Yesterday, I met him again for the first time in two years. He said that when the markets went into a downturn, the company lost its former popularity. They realized they were selling a bunch of cool products, but none of them had sufficient economic value. They burned through a lot of money because they raised a lot of investor funds and hired many employees. A new, experienced CEO came in and conducted a cleanup. He helped identify one key product that had the most value (as confirmed by customer feedback) and restructured the company around it.

He asked each salesperson and business development manager to call customers and inform them that contract terms would need to change. He said, “Call the customers, tell them about the situation, and let them yell at you for 5 minutes. Keep the phone away from your ears. After the anger subsides and you haven’t yelled back, they’ll ask, ‘Alright, what do we do now?’”

I liked this story because it felt very real. Only a true entrepreneurial leader would take such a step and encourage his team to make these calls. I think the first call was humiliating for each employee. During the second call, they were hesitant. But by the fifth or sixth call, it was already amusing. It was like a game. You did something they clearly didn’t expect from you, knowing there was no way out. And the world didn’t end. As I always say: “Being an entrepreneur is having unwavering determination.”

Once, I was involved with a company (it wasn’t mine, and I had no investments in it) that had a great product but was burning through a huge amount of money. The director was incredibly smart and charming but wasn’t (and still isn’t) an entrepreneur. I got involved with this company on the principle that “no good deed goes unpunished.” The director was born into privilege, attended the right schools, and worked at the right strategy consulting firms.

We were approaching a recession, but it wasn’t fully clear yet. I knew our sales were nowhere near sufficient, and expenses were gigantic. I LOUDLY declared at the board meeting that expenses needed to be cut. Money was just BURNING. The director said that reducing technical support (where a dozen clients had only 7 people, and sales hadn’t reached a million dollars) wasn’t possible because all these people were needed to comply with client contract terms. We couldn’t cut developers (23 people!) because there were obligations to a major client who was planning a nationwide product launch. We couldn’t reduce marketing because it was essential for sales. “Alright, then let’s renegotiate the contract with our client!” I was told that was impossible or, at the very least, unwise.

When I was running BarberSoft (my first company) and things were extremely bad, we called all our clients and said, “We’ve signed a contract with you. But the reality is that the market has changed, and we need to adapt to these changes. According to the terms, we’re obligated to implement certain functionalities in the product. But unfortunately, we can’t do that. Do you like our product and our services? Yes? Great, thank you. Listen, if you like what we’re doing, you probably want to be a good supplier/partner. We need to be profitable, but per the signed contract, we won’t be. So we’ll either have to lay off developers (and not release the promised product) or charge you a slightly higher fee for services or the desired functionalities to make ends meet. Please tell us which of these two options suits you better.” We didn’t lose a single client. In fact, we even strengthened relationships. I had no choice, and as they say, “necessity is the mother of invention.”

The problem with that company, where money was burning, was that the director considered herself above making these calls to clients or conducting difficult layoffs. That year, we didn’t reach our sales target by 66%, the next year by 45%, and didn’t significantly cut costs. The company was turning money into ashes. I asked to be removed from the board. Or, I was asked to leave. In reality, it was a consensus. When the board sits around the dining table eating with silverware, who wants to tolerate the old and clumsy me with uncomfortable questions.

# On Practical Savvy and Working with Clients

Yesterday, I had coffee with another startup founder. A remarkable guy and truly smart. His startup consists of three people; he is a co-founder but not the CEO. The CEO is the “idea person.” The guy told me about the product they’re developing. I noticed that the product implements an interesting feature, but customers wouldn’t use it or pay for it. I explained my reasoning: “Well, if a client installs your program on their website, they’ll have to hire a bunch of people to manage the project. If your program doesn’t increase their revenue, how will they cover the additional expenses—especially in the current market conditions?”

I gave more examples. I told him he should visit clients to understand their current challenges in attracting and retaining customers on websites. Then, conduct brainstorming sessions with clients to solve these problems. You need to determine whether they would be willing to pay for you to help increase their revenue or reduce costs. He admitted that his team developed the product because the idea seemed good to them, but no testing with real clients has been done yet. My practical savvy told me that the product is unlikely to succeed.

I told him not to get discouraged. That’s the reality—over 80% of startups develop products in a vacuum without even thinking to test their business value for clients or identify their needs. Of course, they might have talked to one or two—but didn’t do it methodically. If you don’t understand how your product provides value to your customers, it’s unlikely to do so—except in cases where you have experience in the field and are familiar with existing products firsthand.

Why do people behave this way, ignoring the obvious? Because it’s much easier to hire a bunch of smart guys to gather every evening and design interface mockups, borrow ideas and solutions from existing market products, create a product, and then show the result to friends than to quickly establish connections with potential clients who you think would be disturbed by your calls. I explained to him that middle managers in large companies often want to feel involved in startups and are much more accessible than they might seem. You just need to step out of your comfort zone.

For more information on venture capital firms, angel investors, and investment opportunities near you, visit Co-Founder Ai.

## Venture Capital and Practical Entrepreneurship

Understanding the role of venture capital companies and private equity firms is crucial for startups aiming to scale. Co-Founder Ai provides tools and resources to connect with angel investors and private equity companies, ensuring your startup is positioned for success.

Need startup jobs or looking to start a startup? Explore opportunities with Co-Founder Ai and join a network of ycombinator companies, venture capital firms, and other equity investors dedicated to fostering innovation and growth.