“It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change.” Charles Darwin, as paraphrased by Megginson.
Great founders don’t look alike (globally, not in the USA, probably)
The average VC gets to invest in 70 startups per year. Surely I cannot serve as many clients so VCs would always have greater insights on business models & strategy. However, VC insights would never be as deep about understanding the people in the organizations they invest in. My insights as an intrapreneur chasing his Unicorn[s] by hopping from one organization to another, contain intricate details. I’m observing the daily life at portfolio companies, not only what they present to the external world & VCs. Getting confidential information, participating in important life events, and learning side by side with some of the brightest minds in the world opens a whole new world of understanding.
What I came to realize in my experience is that companies are like families. Each happy family is alike and each unhappy family is miserable in its own way. It’s similar to companies. Once you know how a winning team is, it’s easier to find similarities and deduce. For these teams, everything seems easy. When I say alike I mean similarities in the substantial traits that combine straight and LGBT happy families. They surely don’t look alike but are alike in the single most important trait for happiness. They have a mindful understanding of each other. They are alike because of the quantity of mind that produces mutual respect and focus on a shared future. No alma mater, gender, ethnicity, or nationality can be a proxy for this mind-based criteria. To observe the presence of a mind one needs to be seen qualitatively or measured with the quantitative test mentioned below.
Once you understand why this is crucial, growing a Unicorn is never hard. If they have a strong mind it’s only a question of time until they get it. Actually, it is straightforward once the founders find the right balance between the form and substance. And yet, this is the hardest problem all founding teams have. They are unable to find the formula that fits the time we live in. Founders have to excel in both the form and substance to adjust to the prevailing trait of our times, which is the form while delivering the substance required to provide any value.
And it seems no one person can achieve this ‘internal diversity’ alone. This is why many VCs avoid single founders. They believe diversity is important and that one person cannot reach the level of perfection to satisfy all the vibes required in an organization. Developers need to be as deep as possible, marketers need to be as effective as possible, leaders have to be as visionary and stimulating as possible. For the company to grow optimally, each organizational unit has to be led by a person with a vested interest to increase shareholder value.
However, experience tends to make people better and better, so sometimes one person can fit all the team’s spirit, with time and evidence to affirm this.
VCs won’t buy the founders’ success
While strong minds don’t matter without enough capital, capital without minds is making bottomless pits, not companies. Having a mind without knowing how to use it is even worse than not having it. Mindless people have made some of the largest Unicorns only because they were puppets of stronger forces behind the scenes. What does it mean to properly use a mind? It means to understand perfectly the external and the internal reality, to come in peace with it and use it to your benefit. Properly using a mind isn’t:
Properly using a mind can be seen only through observable proxies like the ones below. These proxies show that the mind is put to work to resolve empirical problems (real problems). Founders have to see themselves honestly in the mirror and rate themselves on the scale by using the following 15 criteria.
Founders can copy or forward the Founders' Self-assessment (FSA) form here.
The maximum score is 90% as we can always be 10% better.
If you score more than 75% you may be ready for entrepreneurship as a single founder, but please do compare yourself with epitomes of excellence in entrepreneurship. You must find a role model you know personally. TV personalities can be deceptive.
If you surpass 75% then when given VC money you are far more likely to make a Unicorn in just about ANY area of business. Finding the right people is more important than finding the right business model. Business models evolve, but if people have reached perfection in form and substance they will find the right product-market fit eventually.
Founding teams should be masters of Yin and Yang. Form and substance. But we must better explain these ancient concepts as we will use them onward.
Ultimately, it’s about having the flexibility to adjust to the times we live in. Sometimes Yin is the ruler and other times it’s Yang that is dominant. Is politics important today? What prevails differs also in the country we work in as not all cultures are the same. However, in general, there are some general rules that dominate the planet.
How fast can you spin around from Yang to Yin & adjust to the environment? The Chinese economy is mostly focused on Yang e.g. delivering value over form. You can get high-quality products very inexpensively or some lower quality products that serve the purpose. On the other hand, Western economies are mostly Yin-driven. Form trumps substance.
Regardless of the market and country, no company was made Fortune 500 on the date of its registration. So ultimately founders need to find a way to grow out of the substance towards the form as they grow. Not all founders can cope with this change as they lack cognitive flexibility. Some don’t have the substance to create value from the onset.
Also, there are cultural differences. Even if a team was perfect for the USA market, it may not work well internationally. VCs shouldn’t look at the number of founders, but more so to look at whether the company has the right abilities to balance the form and substance as it evolves. Sometimes to achieve this, it is required to have 4 founders and sometimes only 1.
Does your company have what it takes?
The human-centric model for VCs
VCs can never know the founders well enough and evaluating people based on a few meetings & many emails is never deep enough. Therefore, investors should choose companies based on detailed personality assessments that go deeper and also match the qualitative with the quantitative conclusions. The best investors help founders grow too.
Also, in reality, nobody’s perfect so VCs are oftentimes required to manage imperfections. Both in their own companies and in the companies they invest in. When we reify the above theory with the reality investors face, it seems like little can be implemented. But that’s not true.
VCs from higher planes are right most of the time. Things are how they look like, but minds aren't things. So while they get the right form by themselves most of the time, the model also helps them find the substance of the winning founders.
Here’s a simple people-oriented model I will explain that VCs can use to improve their investment decisions. This model has nothing to do with finances or business model, but it's universally applicable across industries.
Everything revolves around the people. Below are the questions VCs can ask to identify the paragon of perfection to invest in. Surely, if one single founder hasn’t reached perfection the team should be evaluated as a whole:
You can rank the teams with 10%-20% on each trait.
You can find the spreadsheet with an explanation on how to get the 'gist' of founders here.
If the companies have similar financial metrics and business models, the best way to allocate the winner is to find the winning team. You can give quantitative numbers to each of these areas as the dominant ‘spirit’ of a company that succeeded. And then, you can match this score with the company vying for a potential investment.
Today there are tests with which we can understand people and how they function better. If you are a VC you can download my 57 TTI pages personality report upon request. This 15 minutes report makes people know the person better than her parents. It contains practical insights into preferred thinking styles, natural abilities, and cognitive preferences.
Each VC is unique and investors already have a way to select the winning companies in their chosen industries. So I won’t be giving investment advice with regards to business models’ selection. However, many VCs would like to know how to manage imperfections over time? Ideally, is to have them and the entrepreneurs do the TTI tests and whenever a conflict arises they can try to find the culprits behind their behaviors. By being more self-aware financiers and entrepreneurs can adjust their course of action towards larger profits for both sides. What’s good about these tests is that they are very easy to improve while they are almost impossible to cheat as that will be visible in the test. No one gets an incentive to cheat herself while the path to improvements in each area gets clear only after 15 minutes.
Case study 1 - Adam's Family
Two brothers from Australia started their fintech business. Family members balance each other out to adjust to the local spirit of their environment. Just like flowers adjust to their soil and atmospheric conditions. One brother was primarily synthetic (strategic Yang) and the other manipulative (mathematical Yin). It’s often in the families to have this as a natural consequence of how families balance out to fit society.
If they implement the Self-assessment matrix above, they would get the results they knew. The tests would have made their knowledge explicit. This is how they will make sure they will do the right hire. In their case, they needed somebody who can work in the middle, between the abstract and the concrete, between the mathematical and the synthetic.
This would be later verified with the TTI. Their choice was down to either self-improve or get the cofounder they lack. As VC funded enterprises require speed and agility, they had to find the missing human capacity outside of them.
Case study 2 - The Leaf On The Wind
A single founder from a prestigious alma mater started a company that looked like a winning business. With his obvious brilliance, he got $10 million in invoice funding without giving away any equity. No one can deny the brilliance of this founder who approached Series A funding. However, his mind is easily influenced by the surroundings as he lacks the concept of Self. While these people tend to be the smartest humans alive, when put in the CEO seat they tend to be like a leaf on the wind.
After a meeting with a large investment fund from Silicon Valley, the founder started organizing meetings for every single thing he needed to resolve. He was thus radically decreasing organizational effectiveness. After a meeting with effective entrepreneurs, he went in the opposite direction and banned meetings.
The VCs eventually financed his company without realizing the erratic nature to be a no-deal in an industry that expects consistency. Consistency was one of the most dominant traits of the founders who succeeded in the field. They didn’t have these insights. If VCs knew the leadership was erratic they would have been able to manage this. The erratic brilliant nature of Larry Page & the slacking Go habits of Sergey Brin were subdued by appointing Eric Schmidt as the CEO of Google. At some point at Google, Larry lined up his employees and started yelling at them, labeling them ‘his army’. And Larry was also worried that Google will never happen as Sergey was busy playing Go all the time. If the VCs John Doerr and Michael Moritz didn’t instruct Larry and Sergey to get a grown-up CEO, the company would not have been what it is today. Imagine if all VCs had this deep personal personnel touch?