April 19, 2024
Einstein's #1 Question For Entrepreneurial Success: Uncover It

If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask… for once I know the proper question, I could solve the problem in less than five minutes… Albert Einstein.

The importance of Einstein’s statement is the focus – on clearly defining the question before seeking solutions. What is the #1 question for entrepreneurs? Here is one of the best:

Should you know how to raise money or how to make money?”

Today, the Entrepreneurial Education infrastructure is designed to help entrepreneurs find capital. Accordingly, business schools and incubators focus on the following:

· Innovation and Business Model: Classes that focus on ideation, innovation, lean strategy, one-page business models, angel capital, and venture capital. The problem with all these classes is that they focus on the VC model of unicorn development. In the VC-model, the assumption is that the entrepreneur needs to develop an idea and a product-service, find angel capital to develop the product and prove the strategy by getting some customers, get VC after proving the strategy, and then exit the venture in favor of a CEO recruited by the VCs. This happens in up to 85% of the ventures funded by the top Silicon Valley VCs.

· Pitch Competitions and Fund-Raising Events: Promotion of meetup events such as business plan competitions (maybe obsolete today due to the time and effort needed to read them), pitch contests (which are more popular because they are short, sweet and completely useless), and shark tanks, which are pitch contests with bite because someone will invest and mostly lose. Mark Cuban’s noted that that he has lost money on his investments in Shark Tank. Cuban seems to be the sharpest needle in the bunch, and if he is underwater, one can only guess about the others. Other experts also note that most angels do not make money. Even one of the top incubators that invests in the best unicorn-development region in the country (Silicon Valley) and did invest in Google broke even on that fund. Says a lot about angel financing.

· Dilution: Entrepreneurs who were replaced ended up being heavily diluted by the VCs and the CEOs they hired. Those who delayed VC kept about 2x the proportion of wealth created, and those who avoided VC kept 7x the proportion of wealth created.

The focus on the Idea and Capital by the Entrepreneurial Establishment helps about 20 out of 100,000 ventures. Venture Development and VC work for ~20/100,000 entrepreneurs, for about 6% of billion-dollar entrepreneurs who got VC early and were replaced as CEO, and for about 3% of VCs, nearly all of whom are in Silicon Valley and who are said to earn about 95% of VC profits.

Should entrepreneurs know how to make money rather than how to raise money? And should the Entrepreneurial Establishment change its focus from Idea-and-VC to Skills and Smart Strategies, which was used by 94% of billion-dollar entrepreneurs to takeoff without VC? This means a focus on how to make money.

Here are 4 world-class entrepreneurs who built unicorns by avoiding or delaying VC:

· Mark Zuckerberg took off without VC and built Meta with a dominant position in the company to control the wealth he created.

· Jan Koum (WhatsApp) avoided VC until after takeoff and the VCs kept wanting to finance him. He offered very little of his company, stayed in control, and kept most of the $19 billion wealth created.

· Gaston Taratuta started IMS, which became Aleph, with $5,000. With his skills in sales, marketing, and finance, he built the company to a valuation of $2 billion with no VC.

· Joe Martin started and built Boxycharm.com to a valuation of around $500 million. He started with $375 and did not raise any other capital.

Entrepreneurial Education today focuses on innovation and strategy development to raise money, which helps very few. Unicorn-Entrepreneurship focuses on making money based on the strategies of entrepreneurs like Taratuta and Martin, who did not need VC, or Zuckerberg and Koum, who built unicorns with delayed VC, after takeoff.

MY TAKE: The Entrepreneurial Education establishment must align its teachings with reality. When the data shows that 94% of billion-dollar entrepreneurs succeeded with skills and smart strategies to avoid or delay VC, it’s time for Entrepreneurial Education to include such skills and strategies into the curriculum. It’s time to candidly address the gap between theory and practice.

MORE FROM FORBESFrom $375 To The Newest Unicorn In Beauty: How Joe Martin Built Boxycharm.com Without VC
MORE FROM FORBESBootstrapping Unicorns: 7 Finance-Smart Insights From Gaston Taratuta
MORE FROM FORBESExclusive: The Rags-To-Riches Tale Of How Jan Koum Built WhatsApp Into Facebook’s New $19 Billion Baby
MORE FROM FORBESCan The Entrepreneurial Development Ecosystem Create More Unicorns By Splitting In 2?
Wealthfront BlogDemystifying Venture Capital Economics, Part 1 | Wealthfront

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