MVF Board Chair, Corky Ellis, On David Roux’s Speech

posted on November 16th, 2016 in Category: 1

David Roux, founder and Board Chair of arguably the largest tech private-equity firm in the world, spoke as our featured guest at the Maine Venture Fund dinner in Freeport on Monday, September 26, 2016.   Roux has seen it all, and had many thoughts, born out of deep experience, about entrepreneurs, on what it takes to be one, and how to assess one.  Below are a few take-always from his speech that we thought you would find interesting:

A major topic of his speech was about entrepreneurs — what qualities most, and most successful, entrepreneurs have, and tips for success.  Roux described entrepreneurs as “heat seeking risk missiles.”  They are typically bad employees, difficult to deal with, and maniacally focused on their goal at any cost. They have grit, adaptability, perceptiveness, tactical ingenuity, selling skills and tolerance for ambiguity, and comfort in chaos, which is the universal condition in the startup world. Many entrepreneurs start with no money, no team, no relevant talent, and no technology — just fuzzy opportunity and enthusiasm and fearlessness.

Roux’s basic advice for the entrepreneur:

  1. Expertise and prior experience are over-rated. Nobody you admire had any idea what they were doing at the start.
  2. Be wary of the big idea myth. Most great businesses are built around useful variations, minor tweaks, and improvements (Microsoft, Apple, Google).
  3. Capital is the least important piece of the puzzle. The world is awash in liquidity. Hope for a mania to break out. That’s when money is cheapest.
  4. Get operational as fast as you can. If you have to, pretend you are real. Become a company.
  5. New markets are easier to navigate for young companies. Rapid change, technical uncertainty, and competitive chaos are your friends.
  6.  Embrace selling, and learn to sell well; 75% of founders are the primary sales person at their company.
  7.  Vision is more important than an exact plan. Inventing the future is hard; nobody really knows the way.
  8. Thus, speed to market is huge. Fail fast, fix quick, repeat.
  9. Fire the strategic planners. Build the future by making something.
  10. A good idea well executed trumps a great idea done poorly. It’s about execution!
  11.  Don’t run out of cash – keep your eye on spending.

In addition to attributes and advice about entrepreneurs he shared some interesting stats regarding startups.  According to Roux, 80% started with founders savings and the median funding was $10,000.  Fewer than 5% of start ups are VC backed.  Forty-one percent of startups had no business plan at all, 31% did some planning, 28% had a full plan.

Roux then shifted from talking about startups to large companies to illustrate what can make these well funded, established companies vulnerable to the aggressive, but also typically cash strapped, startup.

Roux’s take on why big companies fail:

  • No one in current management wants to believe that what they are doing is obsolete.
  • To accountants, new markets are almost always too small to delve into or worry about and look immaterial financially to a big company.
  • Employees have no incentive to take risk in larger companies; the risk and costs of potential failure are too large (e.g. threatens career advancement,or ones job itself).
  • There is rarely anything in a large company’s culture that encourages or supports “trying things out” or “iterating until we find something that might work.”
  • There is rarely any kind of reward for putting ones neck out; maybe an extra 10% bonus or a little raise – not $100 million and a plane.

Overall, Roux’s message seemed be to bet on the entrepreneur and his/her team. The magic as an investor comes from correctly identifying and backing those heat seeking risk missiles that have the right trajectory rather than ones destined to careen off course.

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