The round room problem

This is my own metaphor for what is a constant challenge to entrepreneurs: Focus. Almost by definition good founders never stop looking for ideas and opportunities, both within and outside their current business. That can lead to disastrous distractions. This is the issue with the round room; some of those doors are created by well-meaning investors and mentors, “did you see that company X just raised money by switching to b2c from b2b? You should switch.” Others are defined by your competitors, “The competition is going after Y geography and even though it was not in our plan, they must know something we don’t. Let’s do it.” It can also come from within your own ranks, “Hey, I have been reading email suggestions from our employees and they all think we should veer into Z product. Our employees are close to our customers, so they must be right.”

The challenge is that they might all be right. Or they might all be wrong. Hard to tell without actually doing it! What less-successful entrepreneurs do when they get to that round room is to decide on going part-way down multiple doors. They dilute their original execution plan by trying to leave no stone unturned (or, in my metaphor, no door unopened), in case one of them turns out to be right.  As you may have already guessed, the outcome is almost never positive since by de-focusing from your original business plan, you have reduced ITS chances of success and by only dipping your toes into the others, you also ensure you will not execute THOSE effectively. You must give your vision a chance to prove or disprove itself before moving on to the next iteration. If you do not, you have burned time and money and will go to sleep saying, “I wonder if we had spent just one more month on that plan if it would have worked?” Torture. You have to be able to focus 100% on a direction and quickly determine if it is the right one. If not, then change it up. If you “focus” 20% on 5 directions, you almost certainly will fail and you will get your lunch eaten by someone that does have that discipline to stick to one thing until it no longer makes sense. (btw, a pet peeve of mine is when I hear VCs or entrepreneurs say they focus on…and then they list 10 or more things. That is NOT focus).

When, you ask, is the time to pull the plug? No easy answer.

Vinod Khosla, one of Silicon Valley’s most respected and successful venture capitalists, puts it in these terms: “More often than not, there comes a time during the innovation cycle when you have to cut off a line of thinking; in fact, you may have to do it hundreds of times before finding the right formula.” I often encourage people to accelerate cycles of experimentation. How does one make that call, when is enough, enough? This instinct is one of the key things that separate the best entrepreneurs (and advisors/investors) from the rest” (rest of white paper here).

My take on this is that you have to a permanent healthy skepticism of your business plan and 100% faith on your execution team. There is a term sometimes used in start-up speak: “confirmation bias.” It refers to the all-too-human tendency to believe anything you see or hear that supports your initial thesis and dismiss anything that does not. The danger is that, as Vinod Khosla notes above, you will not be able to recognize the “enough is enough” point until is is too late if you think of everything as supporting your current path and ignore naysayers or negative data.

That is what I mean about always being a healthy skeptic of your own model. Unless you surround yourself by many smart mentors and advisors that are as immersed in the business as you (an unlikely scenario), then you will always be the one in the best position to say, “this business line is dead. We need to move.” Here is where having a great team (both inside execs and board/investors) is key. They need to be able to challenge you and as a group and come to a consensus conclusion. Everyone needs to be on the same page. If they do not, then you will either have quick turnover: “this is stupid, the other model was working great and now we are heading off on a new direction for no reason. I’m out of here,” underperforming staff: “I still think the other model was better. Maybe if I do not put 100% on this one, it will not work out we will go back,” or investors who will no longer support your execution path.

So, when you get to that round room and see all those doors, make sure you understand that almost always you will only be able to go down one single door at a time and that you should not even consider another door until you have gone all the way down to end of the hallway. Also understand that there is no magic signal that will say, “kill this business line.” You will have to make your best guess. It’s scary stuff, but I believe that many more start-ups die from lack of focus than from most other things.

Gabriel Manjarrez is co-founder and CEO of Mimoni, Mexico’s first and largest online short-term credit provider for the unbanked