Multiple streams of income is a myth
Do you know what it takes to spin up multiple streams of income? How many people do you think actually get wealthy from it?
The answer…probably far fewer than you’d think.
There’s a giant issue with trying to create multiple streams of income. Your focus gets split. There aren’t many people that are excellent at their side hustles. No shade. IMHO, it’s not the path you should obsess over.
Outside of working for big corporate, building a business is the only feasible path to wealth. Risk taking isn’t for everyone. If you’re comfortable with betting on yourself, you’re in the right place.
I want you ignore all the fast money advice you see. Ignore the tax strategies from the “wealthy” guy being interviewed outside of his country club in a Ferrari. Ignore the investing schemes. Ignore the Instagram ads trying to sell you a course on writing conversion-driving copy.
Instead, make one decision. How are you going to add value to the world? Hint: There’s only two ways.
- Innovate. Invent a product that solves a big problem.
- Improve. Take an existing solution and make it better.
Crazy, right? It’s that simple.
I love startups because they force intense focus. You have to be an expert at the problem you’re solving. You have to be an expert on the customer you’re solving the problem for. It’s like getting a master’s or PhD. You get deep knowledge.
Rest assured. When you have created value by solving a big problem for your customers. You will be rewarded. After that, you can diversify. Let your money work for you by investing in other asset classes. This is where multiple streams of income makes sense.
Besides, do you know why people are asked to do TED Talks or speak at big conferences? Because they’re f*cking great at a specific thing. Being undeniable unlocks doors and opportunity.
Today’s advice: If you’re doing too much; STOP. Focus on the activity you believe will bring you the most return on your investment and energy. Cut the rest. If you’re looking for motivation, read 10x Is Easier Than 2x. That’s it. You’re on your way.
Underrepresented startup founders unite
The lead investor for my last startup, Slauson & Co., hosted a virtual event called “Framing the Pitch.” Slauson is an early stage venture capital firm rooted in inclusion that believes your lived experience is your competitive advantage. They’ve done a lot of work trying to expand access to capital for underrepresented founders. As founders, the deck is stacked against us. You’re not alone. Competition, limited capital, rising CAC costs, finding and hiring talented teammates… the list is long.
Pre-seed is about traction. But, it’s equally about whether investors believe you and your team are the right folks for the job. During the presentation, Slauson shared this graphic from an article posted by a VC firm named Antler. It highlights potential raise amounts when considering the founder’s pedigree and the product traction achieved. (in EUR, not USD)
I’m writing to you on Juneteenth. I’m less than 3 months away from a potential fundraise. It’s hard not to reflect on how this world is built. Specifically, the pathways for success are built for people that look and behave a certain way. Staring at this chart, I see myself. I’m ex-Goldman. I’ve been a founder already. I successfully raised venture capital too. But, what doesn’t this chart say?
VC investments in Black-owned startups reached nearly $5 billion in the U.S. in 2021. In 2022, it was cut in half to $2.4 billion. Last year, Crunchbase found that only $705 million in venture funding went to Black-owned startups. I can’t see the productivity in postulating all the reasons capital doesn’t get deployed to Black entrepreneurs. I can say that is crushing on the psyche.
It means most of the advice across the internet and social media might be useful but it wasn’t made for founders like me. Because, the system wasn’t built for people like me. They simply allow us to participate. Our parents weren’t lying to us when they said, “You need to work 2-3x harder than the other kids in school if you want to make a life for yourself.”
Your ideas can be great. Your validation and traction may be impressive. You will walk into a pitch. And, an investor will still judge your success probability based on your race or gender. Bias is real, even if it is subconscious. Justin, what am I supposed to do with this harsh reality?
Make yourself undeniable. Take advantage of resources created by people that look like you and care about you, whenever possible. Your gut is important, but be a f*cking expert. Be an expert on your industry, your product, your customer and their problems. I’m currently reading scientific research papers and having daily conversations to mine data and up my game. Be so fluid you can teach a class. Then, learn how to synthesize your expertise in a digestible way through compelling storytelling. Above all else, engage with the community so we can support one another. Nobody should have to do this alone.
I’m starting a company, day 5
I’m feeling energized! A had another conversation with my co-founder. We were looking at an almost impossible fundraise. After our chat, we landed on a plan that makes raising money achievable. It’s early in our process. We have subscribed to the roller coaster of uncertainty and determination. Here’s a look at how our conversation helped us change our strategy.
Venture capital does not like retail
Last week, I looked at 5 important questions to consider before pitching to investors. A core question was about validation and PMF. At first, we wanted to start our business with an entry into retail (physical locations). We would need to raise a lot more money, increase our fixed costs with leases, and hire staff. At worst, investors could view this as a real estate play. It could be an instant turn-off.
VC funding in retail dried up in 2022. 2021 was a banner year, and then every thing changed. Venture funding hasn’t returned in size anywhere except AI since then. Investors are most interested in tech companies. Yet, they are more discerning than ever. Does the tech solve a big enough consumer problem? Is tech core to the business model or mentioned in the pitch deck 100 times? Venture investors are not looking to fumble the bag with interest rates being so high. They have alternative ways to generate comparable returns with less risky assets.
Venture capital loves high returns and mitigated risk
The CPG space has also fallen out of favor. This is the general segment we’re entering. Consumer brands were on fire but the excitement masked a lot of problems. For instance, many CPG businesses raised a lot of cheap money and focused on growth at all costs. The model worked ok when acquiring customers was also cheap. They gravy train can’t last forever. Money got expensive and so did customer acquisition. Those business models had unprofitable unit economics. We’re seeing many examples of these startups and their investors getting burned. See: All Birds.
It’s all more complex than my summary. But, it’s important to note where VC investors may be sensitive and have concerns. We can address them upfront. One way to mitigate risk is to shift strategy from physical retail to online. And although DTC and CPG is scary, we can show a solid go-to-market (GTM) strategy and a data driven process. The biggest question: How will we acquire customers for less?
Having a perspective in saturated markets
Companies succeed when they solve problems for customers. Finding the right problem to solve is the hardest job for an entrepreneur. We’ve identified the problem in our industry. There is too much choice. We are in a curation economy. People are looking for authentic authorities to help them with buying decisions. Our industry hasn’t caught up.
We are an attention economy. Nobody has time for anything. Attention spans are shorter than ever. There is more content than ever. We’ve made things easier and harder at the same time. Our industry has missed the boat on taste, media trends, and consumer shopping shifts. If you want to succeed in saturated markets, you must have a perspective.
Our perspective is that consumers want a curated selection of product. They want to be able to educate themselves on the product in less than 30 seconds. They don’t want to feel intimated. They want a brand experience that feels relatable and authentic. And, they want a sense of community. Lower friction and more trust.
Dreaming of lower CAC and higher LTV
We can’t approach investors with a lackluster margin story. They don’t want to hear that paid media is our solution to getting customers. Our initial brainstorm yielded some great ideas. Considering your go-to-market strategy? Here are some ways we are thinking about keeping acquisition costs down.
- Entertaining and educational content. Create short form content that allows customers to feel smart at the next dinner party. Integrating the content within the shopping experience will lower friction.
- Rockstar affiliates. Our industry is full of experts that have never gotten their shine. If we platform them, we can turn them into an authority and sales pipeline for us.
- Trend surfing. Provide expert curation on our primary offering. Then, expand the offering to include the more of the customer’s lifestyle needs and wants. Nobody in our industry is doing this.
- Gamification and loyalty: With curated offerings there are ways to motivate purchases. Consider ways to reward customers and add surprise and delight to the experience.
- Personalization on steroids: Our industry is all about taste. Taste is an area ripe for personalized recommendations and education.
Founders love options
Making this shift, from retail to online, allows us some leeway. It means we can raise less money. Raising less money is still hard but it opens up the types of investors we can approach. We can focus on friends and family, as well as angel investors. Having a pre-seed round allows us to explore our idea and gather data. This approach gives us a chance to build something and achieve validation and PMF. If all goes well, we’ll be in a better position to enter the seed stage. Bonus, we don’t have to incur a bunch of fix costs that will erode our margins and unit economics story. It’s a win-win.
I’m starting a company, day 4
There are two essential tasks in front of me. First, creating a compelling story. Second, drafting financial projections that are reasonable and align with the story. I’ve shared the business idea with a couple people. There is a lot of excitement. But, that’s not great validation. I have concerns about fundraising for this idea. So, I drafted some big questions for us to consider.
Things to consider before pitching VC funds
Below are some key questions we should try answering before pitching to investors. I’ll provide my thoughts along with each. I encourage you to bounce your ideas against a wall. And, with others. See what sticks. See where there are questions or constructive feedback. It’s early. There’s no need to have complete certainty at this stage.
Will investors invest on thorough research and pitch but no validation?
We’ve all heard the rumors or watched the movies. A founder pitches a napkin idea. They haven’t built anything. Yet, investor fill their bank account because of the big visions storytelling. It’s hard to find real life examples though. We are underrepresented start-up founders. Not because we don’t have pedigree, experience, and work ethic. But, because we’re Black and brown. We should consider ourselves the rule; not the exception.
Can we raise a Seed round without building something?
Hard truth: F*ck tech. I actually love technology, but that’s not our purpose. How long have you known about AI? Guess what. There are approximately 67,200 AI companies worldwide. About 25% of AI companies are in the US. Even if a company isn’t building AI software, they’re definitely exploring implementation. Technology is a crowded space. We will use tech to enhance the consumer experience and operational efficiency. We will be tech-enabled, but not a tech platform.
It’s harder than ever to raise money. Will investors have an appetite for a startup disrupting a retail vertical? We definitely have something going for us. We’re attacking a space that’s established but stale. We have an opportunity to sell the disruption story.
How can we build PMF or early validation?
Validation often comes before PMF. It’s the process of determining if your target market has interest in your products. We’re entering an established market. I’m not sure if validation is what we need. We need to prove the concept we’re introducing to the market and not the product itself. We’ll have to see what early investor feedback says. But, we’ll still need to cover our bases and get ahead.
PMF is short for product market fit. Your product is resonating with customers in a way that allows the business to grow. This feels more aligned with a challenge we need to solve right away. I split PMF into two camps: signals and facts. Buy-in is more powerful than signal. Here’s an example:
Types of Product Market Fit Signals
- # of people on a waitlist
- # of newsletter subscribers
- # of social media followers (across all channels)
- # of surveys validating an idea or product
Types of Product Market Fit Facts
- # of pre-sales or deposits
- #sales (i.e. for us, setup an online business before building physical retail)
- # of high quality commitments (i.e. potential customer takes reputation risk)
The difference is vast. It’s worth watching the video below. Also, read 12 Things About Product-Market Fit by Andressen Horowitz. A lot of the resources you’ll find online about startups are about tech startups. It’s the world we’re living in. There are useful nuggets, but keep that in mind.
How much capital do we need?
We have general estimates. For instance, we earmarked about $250k for each door we open. This would encapsulate build out, inventory, and staff. We also would need money to pay ourselves a livable NYC salary. Our first projection is a raise between $3M-$5M. This would put us in a Seed stage conversation. Yet, pre-revenue businesses tend to raise pre-seed money first. Pre-seed rounds are much smaller. In the past, pre-seed funding is likely under $1M.
First, we need financial projections to see if our back of envelope math is accurate. Then, we need to research funds and investors. Each will have their own method. It’s our job to find target investors that understand our market. We can’t seek out tech investors for an idea that doesn’t need tech to work. They will have unreasonable expectations. And, they likely aren’t interested at all. Raising this amount of money will require many things. If we can land a key lead investor, it will likely lower the friction to reaching our target number.
How will investors react to opportunity size? i.e. TAM, SAM, SOM
The acronyms TAM, SAM, and SOM speak to market size. TAM stands for total addressable market. I’ve linked a page that unpacks this with in-depth details. The best way to derive these numbers is through industry and market research. I’ve included a list of resources you can tap in my day 2 article. These numbers are important to understand if you want VC funding. You may not need VC cash to build your business. But, I’d still recommend understanding your market size and opportunity.
Luckily, entering an established market allows for rich data. We can show numbers on market, industry, and consumer trends. We’ll be able to illustrate how we plan to disrupt our industry and capture our target customers. Given we aren’t a tech startup, we don’t know how investors will react. The numbers will be big, but will that matter? Early feedback will be useful in our fundraising process.
I’m starting a company, day 3
If you read my personal newsletter, Growers, you’ll know I attend group therapy. I share real life updates with the other participants. We’re like family. I told the group about the new business idea. We even dug into some of my concerns, like the ethical implications of success. It was good, because it pushed me to solidify my position.
4 ethical imperatives for my startup
Upon receiving some group challenges, I firmed up my stance. There are four things I’d like to be considerate early on. I believe focusing on these issues earlier allows for proactive measures or planning. Instead of reacting in the heat of the moment. It allows us to think through potential shareholder conflict as well.
1. Consider ethical questions before we build.
Considering these issues now allows us to decide how to shape a plan forward. It prevents getting caught on our heels without a plan in the future as well. Building with strong ethics helps you navigate negative externalities. Such as, the influence of money and relational pressure down the line.
2. Build with as many ethical parts as possible.
My co-founder and I want to build a company where employees love working. All the normal things are important, like productivity and results. But, we prefer to not create a people grinder. It’s not necessary for big time success. You can build a company that gives people meaningful, fun work and real ownership. And yes, it will have its challenges too.
3. Share and live by our ethics and values.
It’s hard to trust these days. When transparency is absent, you increase skepticism. I’m building a startup in public for a few reasons. I love the idea of documenting the process for others to learn from. It may have powerful marketing impacts. It’s a way to hold myself accountable. I will still mess up and not get things right. We’re more forgiving when we own our mistakes, not hide them.
4. Have an economic success plan before being successful.
When this startup is successful, I don’t want to be scrambling in the dark. I want to already know my magnetic north. Luckily, this won’t take a lot of work. For instance, I know I’d love to invest in underrepresented founders. And, I’d love to provide some of that money as grants without equity attachments. Expanding access to capital is huge to me. Finally, I’d love to figure out ways in which I can help rewrite a broken system. I’m hoping I can support with advocacy, charity, and political capital.
Nobody knows
Nobody knows what they’re doing. There is no such thing as proof. I’m fascinated by science and philosophy. Our world is humbling, and our use of language is skillful. Yet, our daily lives often require much certainty. Often, we forget that this reality because a degree of certainty is a necessity to function.
You would never skip the elevator and jump off the side of a building to get somewhere faster. One, that would be insane. But, two, you’re reasonably certain that gravity exists. The fall would end you. Data driven jobs, most of them, require us to reach higher levels of knowing to make decisions. It can be stifling.
We need grace. All science provides us with the best current model. It’s impermanent. Which, is unsettling, but super useful. In context, I think about life as a marketer and founder. You have a limited amount of runway (money in the bank). The biggest priority is to drive success and growth while making sure you can live to fight another fiscal period. Who doesn’t want certainty?
Hence, we do our best to create the best current model. A model for understanding for what customers will do if we move a checkout button, change a CTA, or update the copy in our abandon cart email. We try to forecast the impact of each advertising dollar. We attempt to know the future. We don’t have a clue.
Test your hypotheses. Trust your informed intuition. Assume a margin of error, or add a discount rate to your certainty. Be bold but be responsible. Take risks, not chances. And, when you encounter failure, give yourself grace.