If any of you read one of my blog posts entitled “Six Things VCs look for in an Investment,” you may remember that the first entry on the list is “An Extraordinary Entrepreneur with Unique Insight.”

I recently watched an outstanding presentation called “How great leaders inspire action” by Simon Sinek (embedded at the bottom of this post). It inspired me to write about my own experiences as an entrepreneur that relate to his message:

I meet with a lot of would-be entrepreneurs and executives that are looking to get into the world of startups. During those meetings I can often detect which people are truly cut out for this world, and those that are really looking to get in with the hopes of making some fast money. For the latter, I always tell a story about a life changing event that happened to me:

My first and second startups were driven because I was doing something that I was truly passionate about. It was what I believed in. (In Simon Sinkek’s terms, I was doing this “because of the Why”.) After I got married, I mistakenly felt a need to make money, and so I looked around for a situation where I could make money quickly. I found a turnaround, which was a bankrupt hardware company (Xionics). I did care about the industry that they were in, but rapidly found that I personally had no passion the hardware business. I hated it, because as the hardware vendor, I was reliant on the software vendors to drive the innovation that could sell the solutions that would drag through our hardware. The problem was that the software vendors were all old school, and not building anything innovative. This became one of the most unhappy times of my life. Eventually I became so unhappy with the situation, that I created an internal startup software project, that we later spun out as a separate company (Watermark Software). I did this so that I could take charge of my own destiny and become the innovator.

I remained a major shareholder and board member in the hardware company, Xionics, and the board hired a great entrepreneurial CEO who developed a new mission for Xionics that he was passionate about. This led to both companies becoming successful. The hardware company went public, and was eventually acquired at a great price. And the software company was acquired for a 5x return within two and half years.

The big lesson I learned was that, in the startup world, if your primary focus is on making money, you usually won’t make money. When you work because you are passionate about your work, I believe you will maximize your chances of making money. Usually it will happen in a way that is totally unexpected. And it will likely happen at a time that is unexpected.

In my case, my passion in life at that time was building truly great products that would delight customers and change their lives for the better. (Later on, when I became a VC, my passion changed to helping other entrepreneurs.)

Why building a company for an exit usually won’t work

As a VC, I often hear entrepreneurs making pitches where some part of the presentation focuses on how they are going to exit from their companies. I personally find this to be a turn off. I realize that this viewpoint is unusual for a VC, as many VCs see this as an important attribute of a good investment. I am far more interested in finding entrepreneurs that have no thoughts of exit, and who would love to see their company become a leader in its field, and stay with it as it undergoes that journey. Those are the kinds of entrepreneurs that have the ability to be great leaders. Their passion will inspire their employees and drive customer loyalty.

Whenever you see a company being built for an exit, you will see short term decision making. You will find people thinking about how various moves will be perceived by potential acquirers, or what will get the company to an IPO where they can cash out their shares. That leads to short term decisions that are often in conflict with what makes for great companies, which is a maniacal focus on building spectacular products that delight customers.

It is also important to note that if you are hoping to sell your company, you don’t control that process or decision. As is often repeated in the startup world: companies are bought, not sold. i.e. the acquiring company has to make the decision that they want to buy before there can be an acquisition.

When you talk to the acquiring companies and ask them what they are looking for in businesses that they want to acquire, they will tell you that they are looking for companies that have been built to remain independent. Those are the businesses that have the loyal and dedicated employees that are passionate about what they do. Those are the employees that they want to have on staff.

They will also tell you that they can usually smell companies that have been set up for a quick sale a mile off, and they usually run away from them. Or at best, they will pay a low price to acquire them as they know the employees are tired and not likely to stay and be excited about the next phase of the company’s life after acquisition.

Why great startups are often started in bad recessions

Around the years 1999 and 2000, the startup world was invaded by a range of newcomers that were attracted by the prospect of making a fast buck. They had seen all sorts of dot com companies with crazy business plans go public and get amazing valuations. In my opinion these newcomers were not really true entrepreneurs. They were not motivated by a powerful inner drive and passion to build something wonderful. They were motivated mostly by money. The net result were some of the worst startups we have seen.

When things changed in 2001 and the IPOs vanished, the startup world became a very tough survival environment. The visitors disappeared back to other jobs where they thought they could make more money. However the true entrepreneurs stayed. They battled the harsh funding environment even though they realized the chances of making money were slim. They did this because they were passionate about their ideas. Most had to live on substantial pay cuts. Not surprisingly many of the best startups were started in this kind of environment.

So if you are attracted to the world of startups, ask yourself this question: are you here because you are passionate about what you will be doing? Or are you here because you think this is a great way to make money? If it is the latter, I believe your motivations will have the effect of leading you to disappointment.

The best employees are attracted to a big vision

The other lesson that I learned from my own startup experience was that there were two types of employees: the one type saw a startup as just another job, and put in just the right amount of work. The other type bought into the vision, and dedicated most of their waking hours to finding creative ways to make the vision come true. Clearly the second type were the more valuable even if they had less experience than the first.

It wouldn’t be uncommon to find the first type asking questions about how long would it be before the company exited. But the second type would be far more focused on the vision, and the bigger and bolder the vision, the more interesting and exciting were the types of people that would be attracted to join. To hire this level of individual requires a founder and CEO that are able to convey passion for their mission in a way that is credible with smart people who will question whether it is achievable.

What Simon Sinek’s presentation can teach startups

As soon as you watch the presentation below, it will become immediately clear that startups need to be focus energy on selling the Why, and not the What. You all started your businesses because you were passionate about what your product could do to change the world. Don’t be scared to tell the world what your grand vision for change is about.

For a good example of a company that does this very well, take a look at this video: HubSpot acceptance speech after winning Best Place to Work in Boston 2010. You can see Brian Halligan, HubSpot’s CEO clearly express their grand vision for how they want to change the world, and how that has led to a highly motivated workforce that believes in the mission and loves their work.

Let me not steal from Simon’s message. Instead I strongly encourage you to watch him tell this fascinating story.

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