Scarcity +/- Scary

The only thing an entrepreneur has “control” of is resources. The main resource being cash and allocating those resources with an expected outcome. The easiest allocation of capital resources are the ones with the most predictable and risk-free results. For example if you rent a 3,000 square foot office space with a lease. You pretty much know how much you are spending and what you will get. You don’t wake up one morning and your rent has doubled not that you only have access to half your office space. The financial argument for the wasted spend on rent is fine but bottom line you know what you are paying and you know what you are getting. This is the easiest of capital allocation ad a founder. From there, the most riskiest is hiring people. A founder spends so much time interviewing people, defining the role and trying to set mysterious goals as a way to measure results.  No amount of interviewing and reference checking will mitigate the risk of a new hire. It is the riskiest capital allocation that a founder can make, and also the biggest opportunity. Let’s be real, office space will not make or break your startup.  A great hire or a terrible hire, will absolutely be a difference maker for your startup.
The second riskiest capital allocation for a founder is a customer. Doesn’t seem obvious because any paying customer is a great customer, right?! You know who makes the best customers? The customers that are the best fit or your ICP (Ideal Customer Profile). A bad fit of a customer can put you out of business. This doesn’t even include “bad” customers. I’m just alluding to bad fitting customers. Marketing, selling, closing, onboarding and executing for a customer is a massive investment (resource allocation) for a startup. A customer that doesn’t fit today, won’t fit any better tomorrow. In fact, it likely gets even worse. Have you ever bought a pair of shoes that didn’t fit. (BTW, I was a shoe salesman all through college, my friends would call me Al Bundy. College friends are the best.). Buy them too big and you wear an extra pair of socks. You are pretty much destined for a blister. Get them too small and tell yourself “they will stretch out”, well you will be in a lot of pain til you just give up. Fit matters.
So how do you figure out fit for the 2 riskiest capital allocations that you will make as a founder?
1. Build a relationship. Take the time to get to know the person/firm. Don’t be in a hurry and get to understand them, their previous experiences and how they think about their future. Break through the facade of it all. I once had a prospect tell me that they thought my product could get them their next promotion. I didn’t believe that and I told them so. They bought anyway, and through several iterations the relationship was successful.
2. Build Relationship Equity. My friend David Nour will be speaking at our 8th Annual Summit. He is a global expert on relationship economics. Building relationships takes time, energy and content that cannot be done well via Zoom. It’s about spending quality time with quality people in a safe space.
3. Referrals are best. Whether it’s a customer or new hire. A referral from someone that knows you and your firm will always be a great start. One of the challenges with referrals is that a lot of people are not going to go out of their way to make a referral. Not because they don’t like you, but for various other reasons. Last year I was raising our second fund. When I asked for referrals from my existing investors, they got uncomfortable. So I asked. They said that they are not experts at startup investing and that a referral would imply that they knew what they were doing and would borderline on investment advice. This was very valid. So instead, I gave them a few comp codes to my summit last year and they invited them. “KP hosts an amazing summit, I make a point of going every year and I think your would find it worthwhile. I was talking to KP about you and he generously offered a free ticket, since you are a first timer.” When they came to my summit, I was able to have a warm conversation which led to gaining a lot of investment dollars.
4. Shared experiences. I host invite-only complimentary events for executives, called Executive Briefings. They are a lot of fun, a small group of 50 and a lot of opportunities for shared experiences. Whether it’s learning together in a conversation with an expert at the table. Disagreeing about a topic, or an after hours yacht party. These cumulative shared experiences accelerate the relationship building. Once you have been in a “bunker” with someone, you know whether they are a fit and the shared experiences galvanize a relationship.

As a founder, think about how you allocate your time and capital. Your job is to mitigate risk while gaining opportunity along the way. Many times you have to take risks (it’s a startup after all), but you can consider all the factors and exhibit a level of patience. When you make a bad call (you will), course correct aggressively.

The biggest nugget. Treat your first dollar the same as your last dollar. Scarcity of resources has a way of driving a scary behavior. I think someone once said scared money don’t make money. So for this weeks Sunday Scaries, focus on patience and relationships. For those of you attending my Summit this month, I am so excited to spend time with those I already know and get to know those that I barely know.

https://www.aecsummit.co/