Are You Ready to Run Your Business for the Next Ten Years?

I recently wrote a recommendation for an entrepreneur who I have known for a number of years.  Osage never invested in his business because it was a bit out of our scope, but I used to spend time with him discussing his business, his strategy, and his challenges.  His company had a less than successful outcome although it was ultimately sold.  Part of the recommendation is below:

In my job I watch people build businesses successfully and too often unsuccessfully and the character of a start-up entrepreneur is constantly tested through financial hardship, business setbacks, and a whole myriad of unpredictable outcomes.  I saw “Tom” ride a rollercoaster and do it with his character, his family, and his identity intact – which is very hard to do.  I have seen many in less challenging situations alter entrepreneurs’ behavior in unfavorable ways, but in “Tom’s” case, he stuck to his principles and ultimately found an acceptable outcome.  

Building a business takes time and can be a slog.  We all know that the rewards can be high but the challenges can also seem insurmountable at times.  We have many criteria for assessing entrepreneurs and management teams but I have come to realize that in addition to everything else, entrepreneurs need to be considered on their ability and willingness to take a ten year journey.  We are not investing in the next WhatsApp or Instagram.  We are B2B technology investors, and those businesses take time to build.  SevOne and InstaMed, two of our oldest but most successful companies to date, have had their ten year anniversaries since founding – and the founders are still at it.

Ten years is a long time, especially as a founder and CEO of a venture backed business.  Some of the things an entrepreneur needs to make this journey include:

• A belief you are building something of real durable value.   Peter Theil talks about the durability question of “will your business exist ten years from now?”  He also suggests that to build a durable business, one needs an appropriate combination of proprietary technology, network effects, economies of scale, and strong branding.  If you are building a gap filler that you feel will be acquired quickly by one or two potential acquirers think again and go back to the drawing board.
• A real passion for the business vision and the problem being solved or the technology being applied.  Too many entrepreneurs just think that they have identified an area where they might get rich versus an area that meets their passion.  This works in a very small number of cases where exits happen fast.  Where exits take time and rely on the building of a real business, passionless CEOs frequently don’t finish the journey.
• A willingness to accept below market compensation for all or much of the time.  Most CEOs could be making 2x or 3x what they are making in the start-up if they were working in large established businesses.  It is easy to give up this salary for the dream of entrepreneurship in the early days, but harder to sustain below market compensation for the long run as equity can’t be used to cover personal cash burn.   Many CEOs may go from single to married to married with children during the lifecycle of their business, and their personal expenses (and the challenge of foregoing cash compensation) rise dramatically when that happens.  When entrepreneurship works, the sacrifice is well worth it.  Equity doesn’t pay the rent, but over time it can make you the landlord.
• Strong relationships and a strong sense of self.   As I wrote above, “I saw “Tom” ride a rollercoaster and do it with his character, his family, and his identity intact – which is very hard to do.”  I do not know the statistics on failed relationships for entrepreneurs but they must be high.  Successful founders are thinking about their business 24 / 7 and are on the road constantly – with customers, investors, and partners.  This can create challenges at home and can cause relationships to fail – marriages, friendships, and partnerships.  Founders who are not seeing visible success may have even greater stresses without the promise of the brass ring to salve the hardship incurred.

If you are in a meeting with Osage and we ask you if you are ready to run this business for the next ten years – think about whether you really have the right business, the passion, and the willingness to go all in.  The risks can be extremely high, but the rewards can also be great.  We are hoping you say yes – but with eyes wide open.  At Osage, we fundamentally respect entrepreneurs and hold our portfolio CEOs in high regard because they have put all their chips on the table and work tirelessly every day to increase the odds of success.