Singles vs. Homeruns

As a rule, venture capital money likes really big ideas.  Due to the high-risk nature of the asset class, in order to attract VC money there should be some possibility that a company can grow into a billion-dollar business one day.  It’s true that venture capitalists have started swimming a little further up stream into the seed stage, and because companies have become less expensive to start, this rule is probably a little less true than it used to be because a moderate amount of money, invested early at a reasonable pre-money valuation can generate strong return multiples.  Generally speaking, however, founders should design companies that  “swing for the fences”.

Execution, however, is not a home-run derby.  In my opinion, the best business managers are really good at hitting singles.  By establishing milestones and achieving them in a pre-determined time period, companies can build on a foundation of tactical executions and keep growth on track in advance of their next round of financing.  You can’t have an objective of “Become the next Google” without supporting that objective with tactics.

When venture firms draft memos, they typically include a section that states the conditions they would like to see met in order to reinvest in a company.  This is a process designed to help take some of the emotion out of reinvesting.  These conditions are rarely grandiose.   I can promise that you’ll never see a condition in a memo that reads “company should have become the next Google.”  Usually the conditions that investors like to see when considering reinvestment are a series of aggressive but reasonable, quantifiable objectives.

When founding a company, founders should think a little bit like investors by trying to figure out what quantifiable objectives they would like to see met and by when, and be honest and disciplined about measuring their company’s performance against those objectives.  Not meeting them doesn’t mean failure, but it may help you refine your strategy, hit some new singles and eventually win the game.

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2 thoughts on “Singles vs. Homeruns

  1. “the best business managers are really good at hitting singles.” Because they’re just that… managers. Entrepreneurs are the ones that swing for the fences (or at least see the fence). Granted there are some entrepreneurs who are totally delusional about their idea and who will get upset if you don’t see them as the next Google. Some of the most successful start-ups I’ve seen have had the “idea guy” and the “execution guy”. Some times they have a foot in each other’s camp but often focus on their skill sets.

    It tough trying to tackle both.

    • Great thoughts and agreed- that’s the combination that tends to work well (visionary vs. operator) aan is definitely the most common. I’ve also seen entrepreneurs who are great at the big while still hitting measured goals. It’s rare, but it exists.

      What I think doesn’t work is when you have an entrepreneur who looks to bring in stakeholders and fails to structure their growth or goals, only looking at the big picture. Milestones are an important piece of the business building picture, which is why VCs tend to back teams that can execute over people with just an idea.

      Ideally, you have what you’ve described– the complimentary team.

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