{"id":2942,"date":"2019-07-05T09:43:24","date_gmt":"2019-07-05T09:43:24","guid":{"rendered":"http:\/\/amanagp.com\/?p=2942"},"modified":"2019-07-05T09:45:32","modified_gmt":"2019-07-05T09:45:32","slug":"11-lessons-from-venture-capitalist-fred-wilson","status":"publish","type":"post","link":"https:\/\/amanagp.com\/advisory\/11-lessons-from-venture-capitalist-fred-wilson\/","title":{"rendered":"11 Lessons From Venture Capitalist Fred Wilson"},"content":{"rendered":"<div class=\"lead\">\n<p>Fred Wilson has been investing in tech companies since the late 1980s. We take a look at some of his most important lessons on product, management, and investing.<\/p>\n<\/div>\n<p>At the helm of Union Square Ventures, the venture capital firm he started in 2003, Fred Wilson has backed some of the most successful internet startups through the years \u2014 with\u00a0at least one billion-dollar exit in his firm\u2019s portfolio every year since 2011. Among those wins were Twitter ($14.2B return), Indeed ($1.4B), and Etsy ($1.78B return).<\/p>\n<p>The year Wilson launched USV was also the year he started his career as a prolific blogger on\u00a0<a href=\"http:\/\/avc.com\/\" target=\"_blank\" rel=\"noopener\" data-saferedirecturl=\"https:\/\/www.google.com\/url?q=http:\/\/avc.com\/&amp;source=gmail&amp;ust=1562080904279000&amp;usg=AFQjCNEHQb42ItFdiReTLffMjdyg8ez5ag\">avc.com<\/a>. His almost daily posts run the gamut of subjects in the tech and investing space, from policy issues like patent law to strategies for building and retaining a team.<\/p>\n<p>As a self-described \u201cinvestor who cares,\u201d Wilson\u00a0advises founders on how to keep their teams upright when things go wrong, and talks about how moments of stress can help companies come into their own. He advises investors on how to take the right risks to find those gems that change the face of an industry, and how to steward the rest to the best exit possible.<\/p>\n<p>Here we\u2019ve collected 11 of Wilson\u2019s most essential lessons on venture investing, social media, and managing companies from his posts on\u00a0<a href=\"http:\/\/avc.com\/\" target=\"_blank\" rel=\"noopener\" data-saferedirecturl=\"https:\/\/www.google.com\/url?q=http:\/\/avc.com&amp;source=gmail&amp;ust=1562080904279000&amp;usg=AFQjCNF1Y1Hs4opDz9fSCCASyRvjWS9-2g\">avc.com<\/a>\u00a0and other writings.<\/p>\n<h4>TABLE OF CONTENTS<\/h4>\n<p><a href=\"https:\/\/www.cbinsights.com\/research\/report\/venture-capital-lessons-fred-wilson\/#product\">Product development<\/a><\/p>\n<ul>\n<li>Keep your vision simple at the beginning<\/li>\n<li>Early revenue growth isn\u2019t always a positive \u2014 instead, focus on market fit<\/li>\n<\/ul>\n<p><a href=\"https:\/\/www.cbinsights.com\/research\/report\/venture-capital-lessons-fred-wilson\/#social\">Building social networks<\/a><\/p>\n<ul>\n<li>Social networks are most effective when bundled with other services<\/li>\n<li>Second order network effects create powerful businesses<\/li>\n<li>Social networks need to add value for the single user<\/li>\n<\/ul>\n<p><a href=\"https:\/\/www.cbinsights.com\/research\/report\/venture-capital-lessons-fred-wilson\/#investing\">Investment advice<\/a><\/p>\n<ul>\n<li>Spend the most energy on the middle of the pack in your portfolio<\/li>\n<li>Invest in bits, not atoms<\/li>\n<li>Investors need to love their losers<\/li>\n<li>Exercise discipline about how many companies you take on<\/li>\n<\/ul>\n<p><a href=\"https:\/\/www.cbinsights.com\/research\/report\/venture-capital-lessons-fred-wilson\/#management\">Management advice<\/a><\/p>\n<ul>\n<li>A crisis can help a company grow stronger<\/li>\n<li>Growth isn\u2019t always worth it<\/li>\n<\/ul>\n<h3 id=\"product\">Product development<\/h3>\n<h4><strong>1. KEEP YOUR VISION SIMPLE AT THE BEGINNING\u00a0<\/strong><\/h4>\n<p><i>\u201cPick something simple to execute, nail it, then build on it with another relatively simple move, nail that too, and keep going.\u201d<\/i><\/p>\n<p>When entrepreneurs pitch to investors, it can be tempting to paint a grand portrait of the future: not just a vision for their product, but a 5-year roadmap and go-to-market plan that culminates in huge hockey stick growth and creates a multi-billion dollar business.<\/p>\n<p>Fred Wilson<a href=\"https:\/\/avc.com\/2018\/04\/keep-the-degree-of-difficulty-down\/\" target=\"_blank\" rel=\"noopener\">\u00a0urges<\/a>\u00a0entrepreneurs to think more simply.<\/p>\n<p>Building a startup isn\u2019t like Olympic sports where \u201cthe way to win\u201d is to perform the most elaborate, technically challenging sequence of moves, Wilson tells founders. Instead, they should think like a beginning diver, and strive to \u201cexecute a simple dive and hit the water perfectly.\u201d In other words, build something that excels at doing one thing and go from there.<\/p>\n<p>Wilson points out<a href=\"https:\/\/avc.com\/2007\/04\/broadcasting_yo\/\" target=\"_blank\" rel=\"noopener\">\u00a0Twitter<\/a>\u00a0as an example of how a well executed simple idea can grow into something massive. At its core, Twitter is a status broadcasting tool. When it first got started, its function was letting users share what they were doing or thinking.<\/p>\n<p>Twitter\u2019s modern iteration can serve a whole host of different purposes. For example, it has branched out into video via streaming partnerships with media companies\u00a0like BuzzFeed and The Verge.<\/p>\n<p>These capabilities \u2014 and the idea that Twitter would have become a virtual streaming platform \u2014 were far outside Twitter\u2019s scope in its infancy. Starting simple gave the product time to get there organically.<\/p>\n<p>Another good reason for the \u201cstart simple\u201d approach is risk. Early-stage companies are up to their eyeballs in it. Building a needlessly complex product adds even more risk, and can make the already difficult work of running a startup impossible.<\/p>\n<p>And companies nearly always have the chance to iterate.<\/p>\n<blockquote class=\"inline\"><p>\u201cUnlike sports like diving or skating,\u201d Wilson advises, \u201cYou don\u2019t have just one or two or three attempts to win. In startups, you get to show your stuff every day, all the time.\u201d<\/p><\/blockquote>\n<p>If the first version of a product doesn\u2019t reach its full potential, the company can always expand on it down the road. But if the team tries to pack every possible feature into the first iteration and fails, the wasted time and money cannot be recovered.<\/p>\n<p>Rather than trying to dictate the way users interact with their product from the beginning, the team should gradually learn what users need and adapt accordingly.<\/p>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone wp-image-2946 size-full\" src=\"http:\/\/amanagp.com\/wp-content\/uploads\/2019\/07\/fred-wilson-1.png\" alt=\"\" width=\"574\" height=\"383\" srcset=\"https:\/\/amanagp.com\/advisory\/wp-content\/uploads\/2019\/07\/fred-wilson-1.png 574w, https:\/\/amanagp.com\/advisory\/wp-content\/uploads\/2019\/07\/fred-wilson-1-300x200.png 300w\" sizes=\"(max-width: 574px) 100vw, 574px\" \/><\/p>\n<h4>2.\u00a0EARLY REVENUE GROWTH ISN\u2019T ALWAYS A POSITIVE \u2014 INSTEAD, FOCUS ON MARKET FIT<\/h4>\n<p><i>\u201cEarly revenue traction, often driven by a passionate founder, can be a nasty head fake. Try not to fall for it.\u201d<\/i><\/p>\n<p>For a startup founder, solid revenue traction can seem like a tonic against the uncertainty of the startup business. If people are buying the product, that must mean the team is doing something right.<\/p>\n<p>Wilson argues that early revenue \u2014 especially from a high volume of sales \u2014 can be actively misleading.<\/p>\n<p>What matters in the long run is whether the company has a solid product that solves a problem for its customers. Strong revenue figures might mean the team has gotten there \u2014 but they might not.<\/p>\n<p>Having a charismatic founder and some clever marketing can compound the problem:<\/p>\n<blockquote class=\"inline\"><p>\u201cA hard charging sales oriented founder\/CEO can often hide the defects in a product \u2026 Because the founder is so capable of convincing the market to adopt\/purchase the product, the company can get revenue traction with a product that is not really right.\u201d<\/p><\/blockquote>\n<p>Wilson recalls a company that fell into this very trap and ended up selling itself in a fire sale. In its early stages, the company grew revenue quickly, which attracted a considerable amount of outside financing. The company used that financing to grow its staff.<\/p>\n<p>However, it had high customer churn, and all of that financing couldn\u2019t reduce the rate of turnover. Despite the high growth numbers, the company failed.<\/p>\n<p>Wilson\u2019s March 25, 2013<a href=\"https:\/\/avc.com\/2013\/03\/revenue-traction-doesnt-mean-product-market-fit\/\" target=\"_blank\" rel=\"noopener\">\u00a0post<\/a>\u00a0explains Stanford professor Mark Leslie\u2019s concept called the Sales Learning Curve, which illustrates the problem here. Before a company can sell a product efficiently, it needs to understand how its customers will use that product, and if customers will continue to get value from it over time.<\/p>\n<p>After launching a product, \u201cthe organization may need another six months, a year, or even longer to get to product market fit,\u201d Wilson cautions, and the founding team can shoot itself in the foot by plowing ahead on sales before getting there.<\/p>\n<p>Once a company has product\/market fit squared away, it will have space to grow the staff and iterate on the product. If one strategy does not pan out, the team can go back to the drawing board and try again.<\/p>\n<p><a href=\"https:\/\/avc.com\/2013\/06\/product-strategy-business-model\/\" target=\"_blank\" rel=\"noopener\">Wilson recalls<\/a>\u00a0that his firm has had \u201cportfolio companies build revenue models that did not line up well with the strategic direction,\u201d but that \u201cthese kinds of mistakes are usually not fatal.\u201d<\/p>\n<blockquote class=\"inline\"><p>\u201cNot finding product market fit,\u201d however, \u201cis fatal.\u201d<\/p><\/blockquote>\n<p>Nailing down product market fit first gives the team room to experiment without jeopardizing the company\u2019s survival. Starting that process too early because the company is making money can do much more harm than good.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Fred Wilson has been investing in tech companies since the late 1980s. We take a look at some of his most important lessons on product, management, and investing. At the helm of Union Square Ventures, the venture capital firm he started in 2003, Fred Wilson has backed some of the most successful internet startups through [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":2943,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ocean_post_layout":"","ocean_both_sidebars_style":"","ocean_both_sidebars_content_width":0,"ocean_both_sidebars_sidebars_width":0,"ocean_sidebar":"0","ocean_second_sidebar":"0","ocean_disable_margins":"enable","ocean_add_body_class":"","ocean_shortcode_before_top_bar":"","ocean_shortcode_after_top_bar":"","ocean_shortcode_before_header":"","ocean_shortcode_after_header":"","ocean_has_shortcode":"","ocean_shortcode_after_title":"","ocean_shortcode_before_footer_widgets":"","ocean_shortcode_after_footer_widgets":"","ocean_shortcode_before_footer_bottom":"","ocean_shortcode_after_footer_bottom":"","ocean_display_top_bar":"default","ocean_display_header":"default","ocean_header_style":"","ocean_center_header_left_menu":"0","ocean_custom_header_template":"0","ocean_custom_logo":0,"ocean_custom_retina_logo":0,"ocean_custom_logo_max_width":0,"ocean_custom_logo_tablet_max_width":0,"ocean_custom_logo_mobile_max_width":0,"ocean_custom_logo_max_height":0,"ocean_custom_logo_tablet_max_height":0,"ocean_custom_logo_mobile_max_height":0,"ocean_header_custom_menu":"0","ocean_menu_typo_font_family":"0","ocean_menu_typo_font_subset":"","ocean_menu_typo_font_size":0,"ocean_menu_typo_font_size_tablet":0,"ocean_menu_typo_font_size_mobile":0,"ocean_menu_typo_font_size_unit":"px","ocean_menu_typo_font_weight":"","ocean_menu_typo_font_weight_tablet":"","ocean_menu_typo_font_weight_mobile":"","ocean_menu_typo_transform":"","ocean_menu_typo_transform_tablet":"","ocean_menu_typo_transform_mobile":"","ocean_menu_typo_line_height":0,"ocean_menu_typo_line_height_tablet":0,"ocean_menu_typo_line_height_mobile":0,"ocean_menu_typo_line_height_unit":"","ocean_menu_typo_spacing":0,"ocean_menu_typo_spacing_tablet":0,"ocean_menu_typo_spacing_mobile":0,"ocean_menu_typo_spacing_unit":"","ocean_menu_link_color":"","ocean_menu_link_color_hover":"","ocean_menu_link_color_active":"","ocean_menu_link_background":"","ocean_menu_link_hover_background":"","ocean_menu_link_active_background":"","ocean_menu_social_links_bg":"","ocean_menu_social_hover_links_bg":"","ocean_menu_social_links_color":"","ocean_menu_social_hover_links_color":"","ocean_disable_title":"default","ocean_disable_heading":"default","ocean_post_title":"","ocean_post_subheading":"","ocean_post_title_style":"","ocean_post_title_background_color":"","ocean_post_title_background":0,"ocean_post_title_bg_image_position":"","ocean_post_title_bg_image_attachment":"","ocean_post_title_bg_image_repeat":"","ocean_post_title_bg_image_size":"","ocean_post_title_height":0,"ocean_post_title_bg_overlay":0.5,"ocean_post_title_bg_overlay_color":"","ocean_disable_breadcrumbs":"default","ocean_breadcrumbs_color":"","ocean_breadcrumbs_separator_color":"","ocean_breadcrumbs_links_color":"","ocean_breadcrumbs_links_hover_color":"","ocean_display_footer_widgets":"default","ocean_display_footer_bottom":"default","ocean_custom_footer_template":"","ocean_post_oembed":"","ocean_post_self_hosted_media":"","ocean_post_video_embed":"","ocean_link_format":"","ocean_link_format_target":"self","ocean_quote_format":"","ocean_quote_format_link":"post","ocean_gallery_link_images":"off","ocean_gallery_id":[],"footnotes":""},"categories":[29],"tags":[],"class_list":["post-2942","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-about-tech","entry","has-media"],"_links":{"self":[{"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/posts\/2942","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/comments?post=2942"}],"version-history":[{"count":3,"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/posts\/2942\/revisions"}],"predecessor-version":[{"id":2947,"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/posts\/2942\/revisions\/2947"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/media\/2943"}],"wp:attachment":[{"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/media?parent=2942"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/categories?post=2942"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/amanagp.com\/advisory\/wp-json\/wp\/v2\/tags?post=2942"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}