“Navigating Startup Success”
For many midstage startups, finding an accelerator can be a great way to find useful guidance that can help drive better results. One of the top accelerators in the startup world today is Founders Space, which is run by Steve Hoffman (AKA Captain Hoff). Steve is a veteran of several startups and the author of several books about the startup world who brings a wealth of information and expertise to the startups that work with Founders Space.
Steve recently spoke to fellow author and startup coach Roland Siebelink on the Midstage Startup Momentum Podcast. The two covered a host of topics relevant to the journey of every founder:
- Why it’s critical for startups to continue to innovate.
- The qualities Steve looks for in founders that are destined for success.
- The true meaning of product-market-fit.
- How startups should balance growth versus and how the economic climate can be a factor.
- The best way for startups to consider new possibilities without getting distracted.
- How startups should pick investors and how to handle difficult investors.
Roland Siebelink: Hello and welcome to the Midstage Startup Momentum Podcast. My name is Roland Siebelink, and I’m a coach and ally to many of the fastest-growing startups around the world. And today, I have somebody in the studio with me who is a guru I look up to in that same field. It’s Steve Hoffman, otherwise known as Captain Hoff, the author of three amazing books about how to really build a startup and optimize it for exponential growth. Tons of experience, and we’re just going to riff about everything it takes to make a startup successful. This is a great episode. I promise you. Hello, Steve.
Steve Hoffman: Hi Roland. It’s fantastic to be here.
Roland Siebelink: That’s amazing. Steve, we’ll talk about a lot of startups, but just in a nutshell, if you were to introduce in your elevator pitch, who are you? Where you came from? Who is this guy? This Captain Hoff.
Steve Hoffman: Who am I? I’ve been around a long time. I’ve done a lot. I did three venture-funded startups in Silicon Valley; I was the founder/CEO, two bootstrap startups, and then I launched Founders Space, which is now - it wasn’t when I began - but it’s now a global startup accelerator. We work in over 22 countries. We have partners all over the world. I’m constantly traveling. Our headquarters are in Silicon Valley - we’ve been there a long time. And I’m also an author. As you mentioned, I have a couple books that startups love. One is Surviving a Startup, which is published by HarperCollins, and it’s all about everything entrepreneurs need to survive, which is the hardest thing for most startups before they begin to really grow like crazy. And then my other book, Make Elephants Fly - and the elephant is your big idea, that dream you have of getting it off the ground. How do you do that?
Roland Siebelink: Excellent. Very good. Steve, you mentioned that you founded this accelerator. Give us an idea about some of the volume of startups that you’ve worked with over the years. And are there some particular success stories that you’re proud of?
Steve Hoffman: Oh, there’s so many. So many great startups that have been through Founders Space. One that’s preparing to go public now is GrubMarket. Now GrubMarket, when they were in Founders Space, very early on, their whole idea was how do you get fresh produce from the farm to the table? And this was years ago. But like so many startups, they have an interesting story. That business was good. But it’s crowded. There’s a lot of players who moved in - Amazon. Big players who are all getting food to your house. A gazillion people delivering food to your house. Their niche was from the farm, directly from the farm. But what they found was that along the way, they had to build out a lot of the infrastructure for this distribution channel, for getting food from a farm directly to consumers. And they became an infrastructure company around that. And that is what took them to the next level because there was nobody in that space. My lesson to entrepreneurs is you start with what sounds like a great idea, but it’s really a journey. And you’re always discovering where that next opportunity is.
Roland Siebelink: Is that also part of what you describe in that book, Make Elephants Fly? Let you start from a vision, but the way you implement it is going to change radically over the years?
Steve Hoffman: Yeah. Make Elephants Fly is about that process of innovation and about the process of continual innovation, continually. And this is what a lot of startup founders - they latch onto an idea and you get locked into that idea. You’re like, “This is our business. This is what we do.” And it’s really hard at that point to keep innovating because you just want to execute on what you’ve already decided. People like certainty, but the world isn’t certain. The world is always changing under your feet. It’s literally moving under your feet. And if you’ve got to, a lot of times, change direction. Even though you have something that’s working, there may be something out there that works much, much better, gets your company to grow much, much faster.
I will give you an example. I’m working with a startup now - I won’t name them - but I’ve been consulting with them for four years, and they do home delivery of food. And that business is so crowded now. It’s so crowded. They had a unique premise at the beginning, but that premise didn’t pan out that would really separate them from all the big delivery companies that are delivering. And I have been pushing them to change. Now they have a problem. They got in all these investors that came on board, a lot of angels putting in their personal money into this company based on the vision they sold them originally, which was a great vision. But it became so crowded and so hard to execute on. Now, how do they go back to those investors and tell them we’ve been spending your money for quite some time now and we have to change direction? We have to throw out everything we did.
And that’s the hard thing. I keep pushing them. They’re like, “No, we can reach profitability on our current model. We’re so close to getting profitable.” But you’re not growing fast. You’re just going to be a struggling, barely profitable company. You’ve got to throw out all these years of work and focus on another bigger opportunity. Otherwise, you’re actually wasting your time. But it’s hard for them. It’s just painful because they have these investors, they have these metrics, they have their whole mindset focused on this one direction. And I can see there’s no big future there. But what do you do?
You’ve been selling them on this vision. It’s hard to go back without looking like a hypocrite and say, “I’ve been selling you on the vision that isn’t working, now give me more money to change direction.” What if somebody came back to: “We’ve been selling you on this vision for years, but it isn’t going to scale fast. It isn’t going to grow the way we thought it would. Now we need more money.”
Roland Siebelink: The other argument you could have there is they’re investors, so in the end, they’re only gonna care about the return. And if you are a savvy business person, entrepreneur, you could just say, “This was our vision originally, but this vision seems a lot more attractive for what we can do right now.” That’s a hard sell for more funding.
Steve Hoffman: That’s what they’re doing right now? They are shifting gradually to this new vision while not totally throwing out what they have. But I am like, “Well, do you just toss it or do you gradually shift?” It’s a really tough decision. They have built up this - their new vision plays on their old vision. But it’s still very different at the end of the day. How quickly do you shift and where do you put your resources? My gut feeling, as an advisor, is you have to shift fast. You have to just cut your losses and redirect. But that creates a radical change.
Roland Siebelink: I want to go back a little bit to the kind of founders you work with, because if you run an accelerator, I think selection of who do you let in is part of the process. What do you look for in a founder? Nobody can predict the future, but what is the kind of profile where you have a really good feeling? If that founder has these two, three qualities, that’s where I see an amazing founder in the making.
Steve Hoffman: I would say selecting the founders is 90% of your job, right? If you pick the right founders, there will probably be good results. And if you pick the wrong people, there will certainly not be good results. In an accelerator, you help them along the way. You just make the results better as an accelerator, but you don’t fundamentally change the equation.
I look for a couple things in entrepreneurs that are really telling. Number one, I sit down with entrepreneurs before we make the final selection, who I work with, and I talk to them. I want to see in their life - I don’t care what university they went to; those standardized tests that they used to get in are all bogus. The whole thing is bogus. I don’t care what university they went to. I don’t care what - even if they ended up working for Google or Facebook or whatever company. I care what you did when you were at the university? What did you do when you were at Google or Facebook? What did you do when you were in high school? Can you show me that you have done anything exceptional, anything that would make me go, “Wow, you’ve really accomplished something.”
A club you formed in high school or a hobby you had that you made take off. What did you do? Or you supported your parents in some way when they went through a really difficult crisis. I want to see qualities in the story you tell me about yourself that demonstrate what makes great entrepreneurship. Great entrepreneurship, number one, thinking differently than other people. Looking at situations and asking questions. Being the type of person who questions why do people do it this way? Why is the world this way? What if we tried this?
And then the second thing is not just asking the questions; executing on the question. Can you get other people to follow you and make this change that a lot of times seems crazy, unreasonable, that most people would say, “Well, that’s impossible.” But you go ahead and actually make that happen. It can be inside a corporation. It can be your own thing - I don’t care what it is. I want to see those qualities. And then I want to see that you faced tough obstacles. And when those obstacles came up, you kept your team together - whoever you got to help you execute on this, you kept them together and you overcame those obstacles.
Roland Siebelink: Steve, looking a little bit at the transition from that early stage where people are just trying to figure out something that gets traction to more the mid-stage, I think the typical tipping point is what we call product-market-fit. How many founders have already asked you to define that for them?
Steve Hoffman: Product-market-fit is actually quite simple. Because a lot of companies don’t really have it or they have it halfway. The hard part is when you get - like the company I described earlier, they have a product-market-fit, their customers love them. I described them earlier. They do an incredible job. But it’s super competitive, so you have a product-market-fit, but the profit margins aren’t there to scale a company fast because there’s too much competition.
There’s different types of product-market-fit. The simplest version is you go out to customers early and you engage with them and you either show them an early version of your product, you describe it to them - any way possible, you get something in front of them that they can respond to. And they don’t say, “Oh, that’s nice. That’s really nice. Come back to me when it’s ready, or, “That’s nice. I’d probably be interested in this.”
If they say that’s nice, it’s the kiss of death. None of us ever need nice products or services. We never need them. Saying that’s nice, it’s nice to have. And what we call a nice to have is something you don’t need. Most people out there, whoever your customers are, they have maybe five needs that they’re going to act on.
It doesn’t matter what it is, it has to be in - whoever your customer is - it has to be one of the top five things that they want right now. Not in the future, right now, today. And you need to figure that out. You need to map that out. If it’s in one of their top five things, it has to be something that they’re not getting. A real product-market-fit is something they’re not getting from the competitors in the way that you’re giving it to them.
Roland Siebelink: You mentioned also that the startup you are working with right now is proud of almost having reached profitability, but they’re not growing fast enough. How do you optimize with the startups you work with their focus on growth versus profitability? And how has that changed in the last year, 18 months of this funding crisis?
Steve Hoffman: Normally, myself being a Silicon Valley guy, I’ll tell people, go for growth. Go for growth. Growth, growth, growth. If you focus on profitability, somebody is going to overtake you and they’re going to crush you because they are going to get the capital because they’re growing faster. Right now, that isn’t necessarily the case in a lot of spaces. My book, Surviving a Startup, it comes down to survival. Startups have to do what it takes to survive. If it’s a growth market, a bull market, investors are shoveling money in, you’ve got to grow faster than everybody else. That’s how you survive. Otherwise, you get wiped out because everybody goes for the market leader.
If it’s a contracting market like right now where investors are hoarding their money, everybody’s scared, then you need to survive a different way. And survival usually means going back and making sure every piece of your business is excellent. All those little pieces when you’re in growth mode that you overlook because you’re really focused on how do I expand faster, how do I get more customers, that’s what you’re focused on.
In survival mode, which we are in right now, you literally have to look at all the different elements of your business. Is our customer support good enough? Is how we distribute products efficient? Are we getting to them in the best way? Is our procurement done right? All these different elements. Can we trim our marketing budget and really focus on just the ones that convert and have sticking power, lifetime value for us? These changes and looking at these changes - and I know, Roland, that’s a lot of what you do - that’s what ensures the company will be there to get the next funding round as things improve.
It’s not always the big idea that drives growth. A lot of times, a lot of the little ideas. And what founders have to do is they have to think: we have this big vision, we want to conquer the world, but we also - historically, the companies that have done well, pay attention to the details. They pay attention. The founders are obsessed with the details of their business and they are looking at every little detail to optimize it. You have to do both at the same time.
Roland Siebelink: You mentioned focus there briefly in marketing channels. Is that something you see as a broader lever in these bad times where people are just all over the place, doing too many things at a time where you can focus a lot more on what really works for them?
Steve Hoffman: Well, I have the same problem myself. Human beings, we live in a world of distractions, things popping up, messages. We’re always distracted by 101 shiny objects. And there’s always some new potential out there, some new technology that’s emerging that you could jump onto. Like this startup that I was helping that was struggling, they were like, “Oh, should I use AI now?” And I’m like, “Well, there’s a gazillion players in AI. You have no expertise in this. You’re not going to win in that space.”
You don’t want to be chasing whatever the last big hype thing was. You want to figure out what’s essential to your business. Like you said, if anything, startup founders are always trying too many things. What you need to do is you need to really focus on what’s the core of our business. Define that. What’s the core value we’re creating for the customer? Is this core value really delivering? Do the customers really appreciate what we’re doing for them?
If they don’t, then you need to look at what do the customers really want? How can we change to meet the needs that they actually value the most? And that means refocusing. It doesn’t mean not exploring focus; it doesn’t mean not exploring other ideas. It means always questioning whether what you’re doing is right. Always looking at other possibilities, but not acting on them unless you can confirm that you really need to make that change. And then you need to totally switch to figuring out that other problem.
Roland Siebelink: Yeah, I also like the framework of the growth hacking guys where they say, “There’s one base tactic to deliver our leads, and then there’s always one experiment at a time to try and beat the base tactic.” But no more than one. And it’s typically only 10% of the budget, maybe 20, but definitely not 50-50.
Steve Hoffman: That’s what you have to do. You have to be like, “This is our base. This is what’s delivering. And can we do better? Is there a better way to do this?” And you don’t want to do 10 experiments at a time because you’re not going to put in enough thought, enough time, enough resources to make any of those other 10 experiments meaningful. You can really only do one other.
Roland Siebelink: Talking again about your book, Surviving a Startup - of course, we’ve talked about survival in bad times already - but there are also other aspects such as surviving an investor, surviving a co-founder. Let’s talk about those humanistics a little bit. Tell us your experience, Steve.
Steve Hoffman: Surviving investors - really, really tough. They can drive you absolutely nuts. I’ve had investors in the past that I handed them back their money, literally. And I was just talking to an entrepreneur the other day - a year ago, just one year ago, her business was struggling. It was on the verge of bankruptcy because COVID had just been hammering their business. It was a network business, a people-to-people business, was just really, really tough. Her investors were hounding. Even though she didn’t have the money, she gave them back their money. And that just pushed her closer and closer and closer to the precipice of going under because she couldn’t take the stress of these investors going crazy on her. They had invested, but then they decided they didn’t like the risk.
Luckily, because she didn’t give up, she borrowed money from other people. Anybody who would help her, and most people wouldn’t. But she got enough money. She totally - based on one of the investors that stuck with her, one of them stuck with her - told her how to revamp her network into a commerce network and totally changed the economics of her business. And she took that advice, executed on it, and a year later, raking in the money. Literally massive growth. But the investors who she paid off, of course, don’t get any of that benefit. And sometimes you have to dump investors.
The other thing that you have to do is pick your investors right. I told you, I gave back money to one investor because that investor was driving me crazy. They were constantly badgering. They were threatening a lawsuit. I was like, “Life isn’t worth it. Here’s your money back.” A lot of times you’re so happy to get capital from anybody that you let them ask all the questions and you don’t ask the questions. You really need to do your homework. You need to do diligence like they’re doing diligence on you. You need to do diligence on them. What other startups have they invested in? And not what other successful startups? What other startups have they invested in that fail?
Roland Siebelink: Exactly. What do their founders think of these investors?
Steve Hoffman: Because it’s easy to be nice when things are going well. But when things are failing, that’s when an investor shows their true colors. Are they going to support you? The great investors, when you’re down, they’re there for you. They’re giving you advice. They’re trying to help you turn that business. They’re not blaming you. They’re not demanding their money back. They’re not threatening lawsuits. You need an investor like that. And it’s up to you to figure it out. You’re taking on major investors, figure out which companies they funded in the past that didn’t work and talk to those entrepreneurs.
Roland Siebelink: Can you also talk a little bit about what do you expect from investors versus what do you expect from advisors versus what do you expect from consultants, coaches, facilitators, external folks? How would you place the best use of each category for a startup?
Steve Hoffman: Well, I think the best use of each category is almost the same. I would say investors can give you money, but the most valuable investors are your advisors. They also sit down with you. They coach you. They have a stake in your business. They’re making introductions for you. They are doing things. Ask your investor what they’re willing to do for you. Ask them what they’re willing to do for you if things go wrong. Ask them the tough question. Again, a lot of advisors turn into investors because they get into your business. When seeking out advisors, when seeking out investors, when seeking out consultants, find the smartest people you can. Find people you truly respect.
Roland Siebelink: Finally, about Founders Space, Steve, why do founders pick Founders Space over all the other accelerators that are out there? What makes you guys different?
Steve Hoffman: What makes us different? Me! No, honestly, what makes us different? One thing is we’re very international. A lot of incubators and accelerators are local. They’re just Silicon Valley or whatever city you happen to be in - Detroit, New York, Shanghai - whatever city you’re in, they’re very locally focused, which is fine. But our big differentiator is we have relationships globally. We are constantly matching and mixing and helping our entrepreneurs go global.
A lot of our entrepreneurs, they’re from the U. S., but they’re also from all over the world. Silicon Valley is a melting pot of talent. And we are getting a lot of our best talent from crazy places like the country of Georgia or Uzbekistan. I have a bunch of partners who I gave a talk to yesterday for our partners in Malaysia, all over the world. The talent is there. People are super smart everywhere in the world. But a lot of times, the opportunity isn’t there, the capital isn’t there, so a lot of them want to come to Silicon Valley, enter the U. S. market, and that’s where we fit in, helping them onboard, launch in the Valley, access capital, and access our knowledge and our experience.
Roland Siebelink: Excellent. Okay, very good. Steve, what do you need from listeners to this podcast? How can they help you? And where can they go for more information?
Steve Hoffman: Well, I love great entrepreneurs. If you have visionary ideas, if you have things you want to do, if you want to collaborate, talk, learn, we have lots of material. Go to founderspace.com. You can also find me and a lot of our material on every social network: TikToK, Instagram, LinkedIn, you name it. Search for Founders Space or search for Captain Hoff. And you’ll also find all my books there. They’re all there.
Roland Siebelink: Excellent. Well, Steve, it has been a pleasure and an honor to have you on the Midstage Startup Momentum Podcast. I really appreciate you taking the time to join here and come and explain all your experience to all the founders listening here.
Steve Hoffman: Thank you, Roland. I loved it.
Roland Siebelink: Absolutely. And for the audience, next week, we’ll have another episode. Looking forward to that. Thank you, everyone.
Roland Siebelink talks all things tech startup and bring you interviews with tech cofounders across the world.