After sending the previous newsletter in February, I started drafting two new blog posts. One was about FTX, Madoff, and Theranos, how mismanagement, fraud, and lack of oversight create a problem in the entrepreneurial ecosystem, harming minorities disproportionately. The second one was about the AI revolution, I started working in AI in 2010 at Sm4rt Predictive Systems, and some of the promises of what we were foreseeing are finally coming to the market. Both ideas were relegated when most of my time was spent dealing with “fire drills.” When you have to file withholding taxes, it creates a lot of paperwork, capital calls, calls, etc.; if your bank fails, you have much work to do.
Communicating to investors, startups, founders, partners, allies, and the whole community of shareholders what the situation was about and assuring them that everything would be fine while finding options to complete our firm and personal commitments, money and time-wise, were priorities. You can’t be a fireman and architect at the same time.
While waiting for the FDIC announcement on Saturday, I spoke with most of our investors. My concern, of course, was my investor’s money; it turned out that in addition to withholding taxes, we asked for capital to fund three companies, and the SVB crash was precisely in the middle of our 10-day window, the perfect storm. Feeling the pressure of getting the money to our companies, making payroll, and paying taxes reminded me of almost every payroll we needed to make when I was at Sm4rt Security—always getting the cash in the bank on the last day, invoicing as fast as possible, collecting in record times, getting loans at very high rates or asking for advanced payments to be safe—always hustling. Chasing money while creating processes and technology, hiring people, and closing clients was an everyday task. Late nights were the standard, and financing the company by not getting your piece of the payroll was expected. I remember it as always being one payroll away from closing the company.
Suggestic’s founder, Victor, says entrepreneurship is like being a Formula 1 driver. I agree. You are putting your life on the line, the risk is very high, and you are expected to perform like the best driver in the world, beating the competition. Your results are a team effort. The people in the factory, your tech team, are designing and building a state-of-the-art car according to the FIA specs to meet what they believe the market wants. The people on your pit wall, your board, are telling you cryptically what to expect and do and if you need to go for plan A or B. When you need a layup or a pit stop to change tires, you rely on the team’s ability to get you back on the track as fast as possible. External events such as safety cars might change your position in the race if you don’t react quicker and better than your competition. You can survive little mistakes; big mistakes will send you to hit the wall or in a crash trajectory with one or more of your competitors. You don’t have time for a break; if there is a gap, you must go for it. It would be best if you were physically and mentally prepared for the challenge, and your diet, sleeping hours, and overall lifestyle habits will impact your daily performance. If you have a family, you spend most of the time away from them, either training, competing, or creating a media presence. Your charm, lifestyle, and behavior will get you sponsors, but your results make them stay and double down. Yes, sometimes you compete against a billionaire’s son or a huge corporation. The most experienced drivers have more consistent results, the rookies need to prove they are reasonably good, or they are replaced. Intellectual property theft is an issue; patents and stealing key personnel are part of the game. The top teams have assistants, trainers, and coaches for the drivers.
The team principals, owners, and investors are in the game as much as the drivers. You work with several providers, engines, technology, security, and Strategics; some are your competitors, and some want to acquire you. It is super exciting and fast-paced, and you might die. You probably won’t die for being an entrepreneur, but closing your company comes with many associated losses. Nightmares are what drivers and entrepreneurs have when crashing or after a bad season or race.
Like an F1 driver, being an entrepreneur is not for the faint of heart. It takes a lot of hard work, determination, and grit to succeed in the competitive business world. Grit is a quality that is often overlooked, but it is one of the most essential factors in determining success. Our fund looks for true grit in the founders when investing. I use it interchangeably with personal pain and passion. The fire burning inside of you will make you power through the toughest of situations. Founders need to love the problem they are trying to solve; they can hate it too or have unresolved personal pain related to the problem. It must be their life purpose, not a career move because it will get tough. Gritty people tend to be self-motivated, focused, and persistent in pursuing their goals.
Grit is defined as perseverance and passion for long-term goals. It is the ability to stick to and work towards your goals despite challenges and setbacks. It is the ability to push through difficult times and become stronger on the other side. Gritty entrepreneurs are not deterred by failure. They are not easily discouraged and are willing to put in the effort and time required to get to the finish line. They see it as an opportunity to learn and grow.
Someone commented on Keanu Reeves’ John Wick in those conversations with investors. Viggo (fictional character and John Wick’s nemesis) described him as the one sent to kill the boogie man, the Baba Yaga: a man of focus, commitment, and sheer will. He told me I should turn on the John Wick mode to help the founders of my portfolio companies in these uncertain times. Focus, commitment, and sheer will are needed to succeed in entrepreneurship. Founders #belikeKeanu
Will is closely related to grit. It is the determination to achieve something no matter what. Willpower is the mental strength to overcome obstacles and focus on the end goal. Gritty entrepreneurs have strong willpower. They can stay motivated and focused on their goals, even when faced with challenges or setbacks. They are not easily distracted by external factors and can keep their eyes on the prize even when performing the most lonely of jobs, CEO of a startup. I kid you not; the top is very lonely. You are solely responsible for the outcome; it is on you if you crash. When founding a company, having a real co-founder reduces your risk of failure by 33%; from an investor’s perspective, having someone sharing the weight of building a successful company reduces the risk of loss by 33%.
For me, hard work and consistency are the third components of success in the equation. Gritty entrepreneurs are not afraid of hard work; they understand that success is not achieved overnight. They are willing to put in the time and effort required to learn, grow and create a successful business. Work is the foundation of success; without it, even the most talented individuals will succeed. Consistency is key. Repetition builds skills, and skills achieve things. Something that separates true entrepreneurs from tourists is the willingness to successfully take a company to a bootstrap mode to build the product, win clients, and achieve break even. Preparing for a new raise with better unit economics, more revenue, a tighter team, and consistent results, and, more often than not, the market will reward them with higher multiples.
As a fund and startup fund manager, just like our portfolio companies’ founders, I am mission and purpose-driven. I have a personal pain and passion that is not resolved when I raise or allocate capital, it is resolved when I deliver through our portfolio companies meaningful impact and financial returns, and the money that we raise needs to be aligned with my mission and our fund’s mission. As start-up fund managers, we must be a team of focus, commitment, and sheer will. I don’t feel like a pilot in F1. Still, I feel like the team principal, finding the best drivers, raising capital all the time, allocating capital to technology, compliance, and processes to deliver consistent results in the top quartile of funds, or our case, in the top 1% of returns. Finding the best talent to help our portfolio companies, providing the best service to you, our investors, and doing all the work while closing the wealth gap in underserved communities.
As you know by now, we only invest in female or minority-led companies in our fund. These founders are on a mission to change the world for good, providing social mobility, especially in underserved communities, and it is no surprise that they deliver returns consistently. We use Angela Duckworth’s grit test, and our founders’ score needs to be higher than 90% of American adults. Research, as well, suggests that people who have faced adversity tend to be more gritty:
“These individuals have overcome difficult situations and learned to persist in facing challenges. People who have experienced trauma, poverty, or discrimination often develop resilience and grit to cope with these challenges. Additionally, individuals with a growth mindset who believe their abilities can be developed through hard work and dedication are more likely to exhibit grit. These individuals are more likely to view setbacks as opportunities for growth and learning rather than failures.” Apparently, more grit translates to more alpha.
Overall if a diverse, disabled, or female founder is pitching a company to me in their second or third rounds, most probably they went through several setbacks to reach the second or third rounds of funding, most probably if the company is socially impact-driven, they have a passion for solving the problem because it is personal to them, probably they experienced this problem first hand. “The founder's passion, grit, and understanding of the problems they are trying to solve are off the charts. Most of our companies are performing. When our social purpose-driven founders with diverse backgrounds are successful, they not only create wealth for themselves and our investors, but they also create wealth and inspiration within their communities. Providing tools to increase social mobility in underserved communities across the US and Latin America.”
Here are 8A recommendations to be more gritty #belikeKeanu:
Develop a growth mindset: Believe that your abilities and skills can improve through hard work and dedication. Focus on learning. We can translate this one to progress over perfection. Focus on learning and progress. Fall in love with the process, and the outcome will come.
Find your purpose: This is as old as Drive from Daniel Pink. Find something you are passionate about and pursue it with dedication and enthusiasm. When working on your life’s mission, if your true purpose is what you are following, then the problems won’t matter; there is no escape from continuing to pursue your purpose.
Set specific goals aligned with your purpose and passion. Having goals will keep you focused, and it will be easier to continue.
Embrace discomfort: Growth often comes from discomfort. You can not improve if you don’t have discomfort. Get used to discomfort; most of the time, you will feel discomfort while building your company.
Fail early, fail often, but always fail forward: you have heard this. You can’t be successful without failing. Failure is just part of the equation of success, be ready to fail and fail fast, if you have a product, test it, if you have a new deck, test it, if you have a new idea, test it; if you have a new outfit, test it. Get used to trying things just for the learning experience. Seek feedback.
Build resilience: Resilience is the ability to bounce back from adversity. You can start by practicing self-care, such as getting enough sleep, eating a healthy diet, and exercising regularly. Surround yourself with mentors, friends, family, and colleagues that are aligned with your mission. If you are stressed, find relief in getting to work versus thinking about it.
Repetition: Repetition is what creates mastery of any skill. Repetition is what creates mastery of any skill. Repetition is what creates mastery of any skill. The more we repeat an activity or behavior, the more proficient we become at it and the more automatic it becomes. Through repetition, we develop muscle memory, cognitive pathways, and neural connections that facilitate our performance and improve our efficiency. Have you heard this one: Repetition is what creates mastery of any skill.
Be kind: “Acts of kindness can make the world happier for everyone. They can boost feelings of confidence, being in control, happiness, and optimism. They may also encourage others to repeat the good deeds they've experienced themselves – contributing to a more positive community.” No explanation is needed.
8a. Go long: Malcolm Gladwell says it takes 10,000 hours to become an expert. If you go long, you will have more chances to get lucky! Be patient, put in the work, and stay consistent.
Know yourself, understand what your passions are, what your mission is, and what your goals are. Grit can be learned, we all have it, and some of us might need it more than others. Angela Duckworth writes: Our potential is one thing. What we do with it is quite another. Get gritty.
Un abrazo,
Carlos (Wolf) Ochoa