Famous technology entrepreneur Rizwan Virk tells about the well-known mistakes about startups in his latest book, “Startup Myths and Models: What You Won’t Learn in Business School”.
He warns entrepreneurs, “There is some truth to every legend, but if you cannot understand the logic of the legend and the secret behind it, each legend will make you do the wrong decisions for your enterprise.”
Rizwan Virk, a graduate of MIT Computer Engineering and Stanford Business School, is a successful hi-tech entrepreneur, angel investor, bestseller and independent film director.
He is also the managing director of Play Labs @MIT, the accelerator of game technology startups at MIT, and partner of Bayview Labs, a start-up investment firm in Silicon Valley. Virk began his venture at age 23 when he and his roommate at MIT turned his first company into a million-dollar venture.
Games such as Tap Fish, Penny Dreadful: Demimonde, Grimm: Cards of Fate and Bingo Run, created by Virk, who is considered a video game industry pioneer today, have been downloaded more than 30 million times and were acquired by DeNA, a billion-dollar Japanese game company.
Prior to all this, Virk took part in the founding teams of CambridgeDocs acquired by EMC and Service Metrics acquired by Exodus.
He inspired both entrepreneurs and spiritual seekers with his first book “Zen Entrepreneurship” written in 2013. In his books “Treasure Hunt: Follow Your Inner Clues to Find True Success” written in 2017 and “The Simulation Hypothesis” written in 2019, especially game technology entrepreneurship transferred his experiences in the field to new entrepreneurs.
In his latest book, “Startup Myths and Models: What You Won’t Learn in Business School”, published this year, Virk explained the “well-known mistakes” and one of the enthusiasts about start ups. He explained what needs to be done from the birth of the enterprise to its maturity.
We talked with Rizwan Virk about the “start up myths” and the basic conditions of successful entrepreneurship:
Why did you write this book? What was the basic idea behind it?
I wrote this book because there are many myths about entrepreneurship and start-ups. When we were at the Stanford Business School, we had many good models of how well-established companies and economies worked. But most of these could not be applied to start-ups. So I decided to create an MBA program for start ups.
What are the most popular myths about startups? What harm do these make to entrepreneurs?
According to some myths you should be the first to enter the market, someone will steal your idea, or the next unicorn (billion dollar company) should be yours. In other myths, your market must be huge, you must hire experienced people or if you wait, you can sell your company more expensive.
There is some truth to every legend, but if you fail to understand the legend’s logic and the secret behind it, each legend will push you to make the wrong decisions for your venture.
You have been investing and consulting both entrepreneurs and start-ups for many years. According to your experience, what is the most important factor in setting up a start up? What are the common mistakes entrepreneurs make at this stage?
The most important thing at this stage is that you understand your target market and build the product that corresponds to the exact need or desire of that target sector. I can say that many entrepreneurs start off with a product idea without understanding the industry.
This is actually not always a bad thing, and many inexperienced entrepreneurs do. But when the product cannot enter the market and generate enough income to keep the company afloat, the team must either produce new products for the same market or target a completely different market.
How many people should the ideal team consist of when setting up a start up? What is the way to make the “best hires”?
There are many different opinions on this matter. I saw successful start-ups with 1 founder, 2 founders and 3 founders. Rarely, there are successful start-ups with 4 or more founders. However, with more than 3 equal founders, it is difficult for everyone to agree on “what to do”. In fact, I have often seen one or more founders leave over time in teams with more than 3 partners.
One of the important lessons in the book is that it is okay to start a company with your friends, but it is best to choose the people you have worked with before in professional settings. Because so you know what it would be like to work together and know each other’s strengths and weaknesses.
What’s the easiest way to raise money and raise funds for a startup?
The easiest way to raise money for a venture is from people you already know. We use the acronym 3F (Friends, Family and Fools) for this. Of course, the last one is sung as a joke. Today, it is easier to find funds from angel investors or start-up accelerators, unlike venture capital managers who expect companies to attract attention before investing.
The key step here is to prepare 5-10 slide brief investor presentation that explains the company, the product and most importantly the target market. However, before doing this, you must make sure that the market you are targeting wants your product.
Therefore, you should go out and meet with the members of your target market and get their feedback and learn about your market. At that time, you may realize that the product you designed with the idea in the first place may not be very attractive to them, but they have other needs.
When to launch a start up’s product. Are there any instances failing because of bad timing to enter the market?
There are many examples that fail because of early launches. For example, companies like YouTube entered the market in the 1990s when most homes had no internet connection on their phone lines.
Sometimes it is necessary to wait for the market to develop. When we look at the example of Life360, which is a very successful start up, we see that; The company made a smartphone app for family members to use in 2008, but at that time there were not many families with more than one smartphone. When this situation changed in 2010, the company took flight.
In my example, when we launched Tap Fish in 2010, the mobile game market was small and we were able to easily become the leader, build a very good game and sell the company.
But when I started my other mobile game company in 2012, reaching users in the US was very expensive and difficult. We needed to raise a lot of money and still haven’t succeeded. This is an example of how “being too late” can have consequences for the market.
What are the best ways to increase the value of a startup?
The simplest way to increase your company’s value is to get more followed. This doesn’t just have to mean income or profit. For example, I was an investor in a company called Discord, which is worth several billion dollars because they had a large user base. I watched them reach 40 million users before 100 thousand downloads in a month and now over 100 million users.
If you are having trouble attracting attention as a company, the market you are in becomes very important. If you are in a market where venture capital managers are looking for an opportunity to invest, you will gain more valuation. On the other hand, if the market is mature and large, it will be difficult to find funds with high valuations, you need to present real financial results.
What are the biggest common mistakes when trying to grow a start up? And how can these be prevented?
Spending money without understanding basic, priority metrics is often a common mistake made by first-time entrepreneurs for a consumer startup. The metrics that show how much you should spend are: Retention rate, customer acquisition cost and lifetime value of a customer.
Another mistake I see is that sometimes start ups turn to other markets before they can dominate the market they are in. For example, without being successful in the banking market, such as entering the insurance market.
Acquiring the Unicom title is a common dream for entrepreneurs. What are the common features of start ups who achieve this goal?
Unicorns are generally valued for their turnover potential in an emerging market. The unicorn named Discord, which I have invested in, has been successful with a very large user base. So it was intense virality that brought them to that point.
In short, they did not spend a lot of money on marketing because new users brought existing users. Many companies that achieve unicorn status are actually not spending a lot of money on companies that can make themselves talk and their users. Its users love their products so much that they literally get their friends “on check” to use it.
What are the major challenges entrepreneurs face “along the way”? How can they overcome them?
Actually, there are many difficulties. The biggest thing is that your product is not needed as much as before, as a result of changing market conditions.
In my first start up attempt, we produced a device that links Microsoft products to IBM products. Seeing our success within a few years, our product became obsolete when IBM produced an application program that links with Microsoft and other products.
Other than that, hiring the wrong people can also be a big problem for a startup. It can be problematic to work, especially with very political people or those who have worked at companies with huge resources before.
According to your observations, which initiatives will write success stories in the upcoming period?
Microsoft has demonstrated that it can adapt to changing market conditions with all technology generations; It started with PC, continued with client/server and internet, then entered both game and mobile phone business.
Google and Facebook also have a very large user base and enough money to make the necessary purchases when they “miss the ferry”. Sometimes they don’t even hesitate to overpay for the things they buy. For example, when Google bought YouTube for $2 billion, people thought it was a wild valuation.
But it was a smart investment, because Google “missed the ferry” in the video field. Similarly, Facebook bought Instagram and Whatsapp for prices that seemed very expensive. But these acquisitions made Facebook embedded in the “next platform” smartphone.
In which sectors do you think we will see successful start ups in the upcoming period?
I expect to see new and successful start ups in many fields such as artificial intelligence applications, virtual reality, augmented reality, gaming, blockchain.
3 BASIC ADVICE FOR A SUCCESSFUL START UP
First, try to work with people you trust and complement you. Second, and perhaps most importantly, choose a market that is small but has growth potential that you can dominate. Finally, don’t focus too much on “exit” or “valuation” issues.
Instead, try to get your first customers to love your products and bring in new customers at no cost to you. If you do these, if the market you are in is really growing, you will easily find your way on your own.
Zynga just recently bought Peak, a gaming startup, for over a billion dollars. As the mobile gaming market matures in the US and East Asia (China, Japan, Korea), these companies will seek new markets to expand.
Therefore traditional role as bridge between the West and the Middle East to Turkey I think would be a good option. European and US companies not only creates the gravitational field in the Middle East and other places in Turkey will enter the quest to buy the start-up of Turkey.