Sutter has coached 11 seasons in the NHL and has only missed the playoffs once. He took the head coaching job with the Kings on December 17th and was 25-13-11 in the regular season. If you include his playoff record, Sutter’s Kings are 37-15-11. Prior to Sutter’s arrival to LA the Kings were a mediocre 15-14-4. The point here is that a good coach in the NHL is worth his weight in gold. To prove this isn’t an isolated incident I’d like to reference the legendary coach, Scotty Bowman, who had 28 playoff appearances and 9 Stanley Cup victories over the course of his career. How can someone who doesn’t touch the ice have such a profound effect on the results?

The role of a Coach is not unlike that of a CEO. A CEO is a strong willed leader that commands respect. He* stands behind his team with a composure that is unfazed by the unexpected outcomes of the game. He’s the author of the strategic plan and has inspired unwavering confidence in its execution. He’s the first and biggest believer in the team’s ability, and his words inspire others to believe in the mission and the importance of their role. This seed of inspiration glues together the group of individuals to become a single unit, which ultimately becomes greater than the sum of it’s parts. It’s at this point where the team exceeds expectations and surpasses the unthinkable.

A CEO is a leader who has the ability to forge through adversity and take ownership of the business. He cannot afford to show self-doubt or dispair during the difficult times. Imagine the opposition scores two quick goals, if Sutter panics and says “this will never work, we can’t win”, the entire Kings squad would crumble. The mood and the culture of the leader radiates across the entire company. A great leader will keep his composure and hold the line during difficult times, but will also bring the team down from the clouds during times of prosperity.

The role of a CEO comes with a massive amount of pressure and is extremely difficult. The employees, the board and all other stakeholders look at the CEO for direction and answers to the hard questions. It’s not that the other founders don’t have a say in the business, but rather it’s the CEO who is the frontman, the leader, and is responsible for the team’s  successes and failures. The role of CEO is not the glamorous position that society makes it out to be, and hiring for it should not be taken lightly. Not everyone has the composure and leadership skills to be a CEO, and that’s okay. While it takes a full team to build something great, it also requires a great leader. Hopefully you’re company has the person who will lead you to a drink from The Cup.

* There are many great Women CEOs and there will be many more in the coming years. The pronoun “He” is used for simplicity and is thought of as a generic pronoun for both genders.

It’s the first week of TechStars Boulder 2012 and excitement is in the air. The founders are fresh with enthusiasm and ecstatic  about the opportunity that the next three months will bring. It’s great atmosphere and a fun time of year. Chris Marks and I spent Wednesday and Tuesday afternoon meeting founders and listening to what they want to get accomplished this summer. As expected, most responses had something to do with figuring out product-market-fit and the go-to-market strategy.

I’d like to compare the TechStars meetings with a meeting we had earlier in the week with Andy Grolnick, CEO of LogRhythm. LogRhythm is one of our more mature portfolio companies and has become recognized as a market leader in the SIEM space (they will be featured as a leader in Gartner’s Magic Quadrant). What I find fascinating about this comparison is how the focal point of the meeting differed from that of an early stage company.

An early-stage company must be laser focused on product-market-fit. What is the value proposition to the user? What is the customer’s willingness to pay? How big is the market for our product offering? Who is the competition and how do we differ from them? Once the product hypothesis has been developed the early stage entrepreneurs will focus on go-to-market strategy, namely distribution. How can you cut out the noise and get customers to try/buy your product? Can you capture their mindshare? What is the frequency of use? The product and strategy of an early stage company are constantly being tweaked as the founders assemble the pieces of the puzzle.

Compare the early-stage process to a growth-stage company who has fully built their core offering and have an established product and brand in the marketplace. In the growth-stage the company is puts the majority of their effort on growing the top line; marketing and positioning, lead generation, converting customers in the pipeline, win rates, lowering churn rate. Don’t get me wrong, any company is only as good as it’s product offering, it’s just that the puzzle pieces have been assembled and the focus has shifted from product road map and development cycles to sales growth and revenues.

Observing the different stages of a startup and the risks associated with each stage is a fascinating topic. I feel privileged to have regular interactions with a set of companies at different stages of the entrepreneurial process. My hope is that I can learn something new from each company we work with and pass this new found knowledge to portfolio companies who face similar challenges.

The appropriate standardized performance metric is a difficult infer. Kauffman suggests that using a public market index, such as the Russell 2000 or the S&P 500, as a benchmark is the solution to problem. I see two problems with this approach.

1. The value of an early stage company’s future cash flows is largely unknown and unpredictable with the bulk of the value created at the end of the fund’s lifecycle. While the lifecycle of a fund might not form a J-Curve, as the report suggests, comparing the value creation in the 1st half of the fund’s lifecycle to a public index would be an “apples to oranges” comparison.
2. The venture industry is largely uncorrelated from public markets. Isn’t this the primary idea behind the portable alpha? Why would one use a public index as a benchmark when the whole purpose of the strategy is to de-risk the portfolio beta by investing in an alternative asset that has the potential to achieve a high return? I do understand that there is an opportunity cost of investment, but the public market benchmark strategy completely dismisses the concept of a diversified portfolio.

I agree that measuring performance on an IRR only basis has some problems, and the large unknowns in future cash flows virtually eliminates the discounted cash flow method. But if the LP takes into account both the cash on cash and the IRR they should get a clear indication of fund performance, and thus have sufficient information to make a investment decision.

There is no question that the 2/20 fund structure incentivizes GPs to raise larger funds. The problem is that VC firms don’t scale (which is somewhat ironic given the VC focuses on investing in business that scale). The Kauffman Report states that big VC funds fail to deliver big returns, and the point of inflection, where the fund size achieves diminishing returns, is at $500mm. The problem is easiest to understand if we look at issue from a “cause and effect” perspective.

Cause: With a 2% management fee a bigger fund earns more money, but it doesn’t usually grow it’s partnership by the same increment as the increase in fees. The result is more guaranteed money per partner, a nice deal for GPs.

Effect: With a larger fund size VCs must allocate more capital in the same time frame. These VCs have two choices: 1) allocate capital in bigger chunks, which means later stage investments 2) make more early stage investments. Larger investments could force a change of scope, but also additional risk, as large failures hurt the return more than small failures. If the VC elects to make more early stage investments, they have more portfolio companies, which in-turn, requires more partner time. Since time is finite, more investments per partner means less time per portfolio company and ultimately a lower contribution, which in theory decreases the portfolio’s chance of success (assuming a VCs active role increase’s the firms chance of success).

Although the 2/20 structure does have some misalignment I don’t think the industry will change. The reason is the polarity of returns between the top VC firms and the bottom VC firms. This makes for a fierce competitive environment, where LPs fight to invest in the top firms (supply exceeds demand). Since the to GPs are oversubscribed, they hold all the leverage and command the fee structure. On the other hand, a GP that offers anything less than the standard 2/20 is signaling inferiority and will actually be questioned by  LPs for the lower fee structure. Dan Primack’s May 11th Term Sheet post highlights Bain’s 1/30 offering.

I don’t agree that that Venture Industry as a whole is broken, with the top firms providing stellar returns (see slides 7 through 11). While the Kauffan Foundation has illustrated some compelling assumptions, I would argue that every industry has its share of top performers and losers. LPs need to use their best judgement to find VCs who are following a sound investment strategy; VCs who are passionate about investing in the most promising and innovative early stage companies, who are working with the most talented entrepreneurs to foster growth, and who are transforming markets and creating long-term value. The idea of building a successful organization is best said by NY Mets GM, Sandy Alderson, in his interview Behind in the Count:

“It’s a cliché, but the enjoyment I get out of this job isn’t the destination, it’s the journey. We won the World Series in Oakland, but that’s not what I remember most about my time there. It’s about building an organization. It’s about following a process you believe in. It’s about identifying good people and then finding ways to keep them motivated and retaining them. It’s about the camaraderie you establish in the organization, whether that’s with the owners or the equipment managers or the clubhouse boys.”

The VC model is not broken, it’s just that some LPs are funding firms that are breaking the mold.

Efficiency and social are at the heart of the sharing economy. If I have a fixed cost for something (empty office space or an empty seat in my car), I can receive incremental benefits by using the excess capacity. Since we are all socially connected on the marketplace, it’s much easier to find buyers for our offering. The peer-to-peer model is ingenious and works great for certain transactions, but is prohibitively difficult for others. Here is a list of the core components to launch a peer-to-peer marketplace.

• Third Party Product and Economies of Scale
• User Reputation
• User Acquisition: Both Supply and Demand Side
• User Experience
• Physical Hurdles to a Transaction

From a technical aspect, standing up a marketplace is as easy as ever. This is primarily due to the vast number of third party technology services that lower the barrier to entry. In addition to the infrastructure as a service companies (AWS, Softlayer etc), services like Legal Zoom and Stripe make it easy and affordable to have professional solutions without getting too deep into the details. In addition to the low startup cost, your marketplace will standardizing the transaction process, bringing economies of scale and the burden of startup costs down to pennies per transaction.

eBay, Craigslist and Amazon have paved the way with the consumer. People feel comfortable buying from strangers online, especially if there are some positive reviews or a reputation score. I realize that this crowd-sourced information is far from flawless, but I do believe that it solves the “Craiglist effect”, where every 2nd person is a scammer. If the marketplace owner adds some additional policing/guarantees in addition to the reputation score they will solve for the majority of the bad players.

Acquiring the critical mass of users is the hardest hurdle to overcome in the early stages. How does one ignite the supply side without any demand side and vice versa? How can one build a market that is dense enough to attract new users? Various tactics can be used depending on the offering, but it usually involves some type of viral game mechanic (credit for friends), geo-fencing (only available in Boulder/Denver) and/or seeding inventory.

Your success and the low technical barriers to entry will cause co-evolution in the space, aka. the rise of the copy-cats. These new entrants are trying to steal your market share and will create a lot of noise, confusing the consumer. Sure, you have the user today, but the new entrant is touting lower fees or some other incremental benefit. Basically, your offering has become commoditized, and it’s going to be hard to increasingly hard to differentiate. The best way to combat the copy-cats is through User Experience. This is the end-to-end customer experience. In the business model canvas it’s the customer relationship square. This is where most marketplaces fail because they don’t put in the hard work to understand the details of the transaction. Brian Chesky says it best in his interview, Airbnb.com: Necessity Begets Creativity:

I think that industrial design is all about user experience. You become a user, you become your own guinea pig, you learn to observe the world. It’s important that you put yourself in the shoes of the user and really use the product. I literally live in Airbnb.com…. Understanding nuances and learning how to empathize with our users. Also, improving the UX of site. As an industrial designer, you just have to consume it, you have to live it.

Since the marketplace is facilitating a peer-to-peer transaction, part of the customer experience is beyond your control. If a transaction in your marketplace has significant physical hurdles it’s going to difficult to succeed. An example of a physical hurdle is the transaction size: if an item is priced too low, it’s not worth the physical requirements (shipping cost, meet up, pickup etc.). Most of us have experienced a Craigslist sale where the buyer shows up 1hr late to buy a $10 item then he haggles you down to $8, or the hassle of packing and shipping a book on eBay for a whopping net gain of $3. Precise timing is another example of a physical hurdle that can hurt the user’s willingness to transact. In a ride-sharing marketplace people are very sensitive to the physical coordination required to fulfill the transaction, a 30min wait makes the ride share an inconvenient option.

When you get into to the details of the marketplace you begin to understand that excess capacity doesn’t always equal a market need. You can leverage third party services, seed the marketplace and be off and running in a few weeks. In the long run the difference maker is going to be the customer experience. It requires detailed planning and tight internal processes that enable your company to execute on the offering. The winning company will create raving fans. This involves thinking about everything from site design to the transaction process. It’s hard work and nearly impossible to replicate.

Before you launch your new a marketplace ask yourself if you want to build customer service company. Are you willing you willing to live it?

It turns out that human geniuses aren’t scattered randomly across time and space. Instead, they tend to arrive in tight clusters…talent clots inhomogeneously…. The secret, it turns out, is the presence of particular meta-ideas, which support the spread of other ideas. Meta-ideas include concepts like the patent system, public libraries, and universal education.

The article then comes up with a blue print for the 21st century:

1. The benefit of human mixing, which allowed a wide diversity of people to share ideas.
2. The importance of education…. we need to encourage rampant experimentation in the education sector, whether it’s taking the Khan Academy mainstream or expanding vocational training. 
3. Development of institutions that encourage risk-taking.

The purpose of this post is to go through run through lifecycle of a startup and correlate the capital raise with the stage of development. The secondary goal of this post is to use the Cynefin Framework to model each stage and illustrate the operations needed to achieve a scalable business.

The are are 4 quadrants/ontologies in the framework, Chaotic, Complex,  Complicated and Simple. To get up to speed on Cynefin watch this video or go to the Cognitive Edge. The framework has traditionally been used for Agile software development but over the past few months I’ve been using it to think about scalability.

BootStrap

This is purely the ideation stage. It’s where you and your 2 to 3 founders identify a problem or market opportunity. The problem begins in the Chaotic section of the Cynefin Framework. Your team will spend most of its time white-boarding a hypothetical solution to the problem. The first cut at solving the problem is usually pretty rough, (turbulent and unconnected) but you hack away, iterating on the approach, until some form of the product is manifested. This is a paper version which is articulated in wire frames mission statements, or a business model canvas. Since your entire team is working on the same project scalability isn’t an issue. 

Friends, Family and Fools

The product and the business model have been mapped out and you can articulate the vision. You start getting out there to see if your value proposition connects with customers. It does, and while your mom is not a valid test market, she still decides to invest. She gives you $20k to get you through the next couple of months. The majority of the problem is still in the Complex Quadrant with many unknowns and variables, but your team is able to distil the big idea into a minimum viable product (MVP). The MVP prototype allows you to test some assumptions with your target market, think clickable wireframes. This effort aims to reduce the number of variables by probing the market, sensing for input and responding with a different test. This phase is also known as the customer development cycle.

Your team has done several iterations and has nailed the prototype. It’s been a long haul but it’s now finally time to start laying the first lines of code. You and your co-founders spend the next month or more building out the MVP prototype. You finish and launch in private alpha and start collecting user data.

Angel Round 

Your initial code has served you well. Customers like aspects of your product but have uncovered some significant issues with the user interface. Thankfully the basic value proposition is solid. A few tweaks here and there and you think you can get the core product to market. You are ready for some Angel money and you raise $300k on a convertible note that converts into the Series Seed round. You work with an entrepreneurial law firm to roll the Friends and Family money into the note, which brings the total value to $320k. You and your team are still working out of the same room, but you find that using tools like Pivotal Tracker or Agile Zen are helpful to get everyone on the same page. Much of the problem is still complex but parts of it are moving to the complicated region.

Series Seed

Congratulations, the hard work you’ve done to date has paid off and you’ve launched your core product publicly. It’s officially for sale, you begin to test a small vertical in the market. Of course this product is only the tip of the iceberg, the grandiose vision isn’t built yet, but the data points you are receiving from the market are positive and you feel like you are on to something big. An early stage institutional investor also believes in what your company is doing and you raise $1mm. The $320k note converts into the round at a 20% discount. With interest the total dilutive capital is $1.39mm. You use the  $1mm of new money to hire a couple of developers, a sales/marketing guy and an undergrad to help with admin. The team of three has now doubled in size and you start relying on documentation to keep the internal team aligned and the investors informed.

While there are still chaotic, complex and complicated parts of your business, documentation allows you to simplify some of the basic tasks. This frees up your time to make the most important business decisions while keeping tabs on the operations. This is the first step in building a scalable machine. You begin the process by expanding the business model canvas into a List of Objectives. These are your value drivers, imperatives, branding etc.  The Objectives guide the Product Roadmap which conveys the value proposition to the end user and differentiates your product from the List of Competitors. The Key Performance Indicators tell you about your customer’s perceptions and allow you to adjust the Product Roadmap. The Financial Reports allow you to understand the economics of the business model and your capital requirements which ultimately affects your Organizational Structure.

Series A

You’ve moved your core product offering forward and your solution is compelling. Although you still have some additional features you want to add to the core product, it is pretty solid (the majority of the product risk has been mitigated). On the other hand your “real” product just launched and you still haven’t fully tested the market. The customers in your small vertical love the product but you haven’t marketed it to the full set of potential customers. Your Series Seed investors love the progress you’ve made and think the company is in a good position, and decide to follow pro rata in the Series A round of $3mm. You spend the bulk of it on user acquisition and marketing, hiring a full sales team. The team creates a Sales Funnel Model which reports deals closed, deals in the pipeline and the ROI on your marketing spend. You gain a few customers, do some analysis and realize that your initial distribution strategy was wrong and your pricing model was a little off.  You go through a few iterations and end up figuring out something that resonates with the large market you are trying to capture.

Series B and Beyond

You’ve got the product’s functionality down, the market is starting to pull and you simply need to add fuel to the fire. In order to keep up with the market demand and scale the larger team you’ve used structured documents to move your Chaotic, Complex and Complicated problems into the Simple Quadrant. You’ve succeeded in creating an organized scalable company. But this is only the beginning, you will require some growth capital to put your stake in the ground and own the market. Time for a bigger round of $5 to $20mm to improve the product and win the space.

Conclusion

1. During each stage of development you reduce then amount of risk in the business and thereby increase its value. As a founder you want to minimize the cost of money by raising an amount that is correlated to your risk profile. Raising a Series A round when your business has a Friends and Family type risk will alter the financing lifecycle and has the potential to complicate financing the business in the future.
2. Operating  an early stage business is much different than operating a mid or later stage business. As you grow leverage the use of documentation to move problems from the Chaotic/Complex Quadrant to the Simple Quadrant.

If you have taken a negotiation class in business school I’m sure you are familiar with the term BATNA (Best Alternative to Negotiated Agreement). What’s implied in this acronym is that you have an alternative, but it doesn’t mention that GOOD alternatives need to be created and creating them takes hard work. The first thing you should do when you receive an offer is convince yourself not to take it. Convince yourself that your company is worth more or your salary should be higher and keep pushing. It’s the key to getting the best deal. When you’ve worked hard to get your business or your skill set to that culminating point, it’s much easier to say “Yes, I’ll take it” versus “I’d like to take some time to consider the offer” and proceed to sell more customers or find new suitors to improve your position.

It takes years of hard work to grow your business to get it to the point where it can raise significant institutional capital or be sold to an acquiring firm. When you receive what appears to be a “good” offer it’s easy to take your foot off the gas pedal, but I urge you to keep pushing. Take two strides into open ice and see if you can create some options. I think you’ll be happy with the end result.

Cover of Liar's Poker

I read Michael Lewis’ book Liar’s Poker this weekend. It was an interesting read, the book was published in 1989 and was about Michael Lewis’ experience as a bond trader. It went through the creation of the first Mortgage Backed Security, the formation of Junk Bonds and the first Leveraged Buy Out. Lewis doesn’t hold back when he describes his perspective of life on Wall Street, he talks about the Culture, the ridiculous amounts of money managed by relatively in-experienced traders and the bank-client relationship. In the end, Lewis ends up defining the culture of Wall Street with this statement: “When you sit, as I did, at the center of what has been possibly the most absurd money game ever and benefit out of all proportion to your value to society, when hundreds of equally undeserving people around you are all raking it in faster than they can count it, what happens to the belief in money?”

I’d like to think the Venture Capital industry has a better contribution to society than the financial industry as described by Mr. Lewis. Some people refer to VC financing as Vulture Capital or compare it to Loan Sharks, and while I’ll be the first to admit that VC funding is expensive, a VCs equity investment in the future of a portfolio company presents an entirely different structure and relationship than that of a Wall Street middle man and his client. Lewis also describes the bond market as a “Zero Sum Game“, while VCs align themselves in the best interest of the portfolio company by funding entrepreneurs with passion to change the world, hardly a Zero Sum Game. High Country Venture Fund I is an example of how a fund can help the economy grow; I’m proud to say that the companies we’ve funded in Fund I have created over 400 jobs in the state of Colorado (Our second fund is still growing but still has created over 100 jobs to date). One may argue that the amazing entrepreneurs we’ve funded would have created these jobs regardless of our participation, but I’d like to think that an investment with our firm brings more than just capital to the table. I believe that having the support and experience of the right institutional investor can help mitigate some of the growing pains a young company may encounter.

Most people cite connections as the primary reason they work with a VC. This is certainly part of the equation, but in the early stages of a companies lifecycle I think strategic direction is a key part of the partnership. An experienced VC has seen startups win, lose, struggle, he’s seen up-rounds, down rounds, good economic times and bad. To put it another way a VC’s sample size or “n” is larger. Most funds will make 10-15 investments over the first 3-5yrs of the fund. When the capital for the current fund is fully committed that same group of partners will raise a new fund and do it all over again. As the institutional knowledge within the firm accumulates the VCs have a higher value add to their portfolio companies. The High Country/Tango management team has been making early stage investments since 1998 and the institutional knowledge is deep. Compare this exposure to an entrepreneur, who has an n of 1.

Overall, I believe in the value creation of the Venture Industry supersedes that of the financial industry. While I do think there are some great and ethical people who work in finance, I don’t think the industry as a whole is aligned with the broader economy. Conversely, there are some bad players in the Venture Industry, but I feel that the best VCs are people that are passionate about supporting entrepreneurs who are transforming markets and creating lasting value. A clear win for society.

Related articles

• VC VISION Launches Aim to Fund 300 Initiative Start Ups (prweb.com)
• VC funding hits 10-year high, though mid-stage startups suffered (news.cnet.com)
• 7 Key Drivers to the Best Investor For Your Startup (startupprofessionals.com)

Tip 1: Know where you want to work. Job seekers often bucket early stage VC and Leverage Buy Out firms together, labeling them as Private Equity. Technically this is correct, but you need to understand that these two investment stages have a completely different strategy and require an entirely different skill set. In an LBO the investment firm will take controlling ownership of the company, while an Early Stage VC takes an equity interest in a portfolio company and views the relationship going forward as a partnership. An Early Stage VC’s daily job functions involve networking, sourcing new deals, listening to pitches, researching market trends, doing diligence on potential investments and helping their portfolio companies grow. A partner at an LBO will focus on financials, debt restructuring and creating operating efficiencies (note that I’m not in the day to day of this industry). An LBO candidate has investment banking experience and a VC candidate has entrepreneurial experience.

Tip 2: Get your story straight. I get it, the job market is tight, so why not interview for both LBO or VC and see what hits? This approach seldom works, I know because I tried. When I first graduated from business school, I ran around trying to sell my financial modeling skills to LBO firms, despite the fact that my passion is in early stage VC. It wasn’t until I became committed to startups that I began to gain traction, my passion for entrepreneurship was contagious and my story came naturally. I no longer had to fake my “excitement for making financial models in excel.”

Tip 3: Get some relevant experience. Go to entrepreneurial events, meet the players in the ecosystem, learn VC from books, events and blogs, volunteer your services to a start up. During my MBA I participated in our school’s business plan competition and the VCIC competition, I re-started the Deming Center Venture Fund, and I volunteered my services to Zetta Sun, a local startup. I did this while networking my ass off, I went to every event I could. I made my best effort to earn goodwill from people in the community, hoping my name would come to mind if a good job opportunity arose. After graduation, I crunched numbers for a local VC firm that needed some help and worked, unpaid, for a startup on the side. If you want to be an early stage VC you need to build a network and have an intimate understanding of entrepreneurship. Unfortunately, no one is going to hand you a job in VC for relevant coursework.

Tip 4: Do your diligence before you ask someone for help, and if they do agree to meet with you be flexible, responsive, and show your appreciation. If you’re trying to get a gig at a hedge fund don’t ask a VC to meet for coffee. It doesn’t hurt to send a networking email indicating your desire to work for a hedge fund, but asking for a face to face meeting is out of scope. If someone in your target industry is willing to help by meeting with you, be flexible with the meeting time and location. There is nothing worse than trying to help someone and having it take six emails to schedule a meeting. Lastly, if the person who you asked for help is kind enough to go back to their computer and type out an intro or some written advice, be incredibly responsive. Any introduction should be followed up immediately with the introducer bcc’d. Post-introduction radio silence is a serious insult and burning bridges isn’t a good way to get into VC.

Tip 5: Have an opinion on the future of tech, but don’t trash a VC firm’s portfolio companies. You can elaborate on why the hypernet + hyperweb is the next big wave, or why peer to peer marketplaces are going to be huge. This shows that you are reading and thinking about the right things. But don’t ever trash another VC’s investment decision. Criticism from the upper deck or playing Monday morning quarterback isn’t appreciated. Remember that the industry is incredibly small and the other VC you are trashing is probably a friend.

By no means is this list meant to be a comprehensive guide to a gig in VC, rather it’s a few helpful hints to set yourself apart. Landing a job in VC requires luck, perseverance, and passion. Since there are no guarantees, you should find a job that you love doing today. The best advice I can give is to let your passion guide you.

Most people get taken advantage of when they are vulnerable, desperate, or lacking self confidence. At this time we tend to dream of the end result and ignore the details that our intuition is picking up. The key to it all is to listen to your gut, which is screaming “This is too good to be true, don’t do this deal or trust this person!.”

I remember shopping for my first condo in Chicago. My budget was $250k and I was hoping to get more than a studio. I must have looked at every place in my price range and finally came across a two-flat that was in a good neighborhood and was a pretty decent size. It was new construction and I liked the look and layout. I met the builder  and immediately realized he was a sleaze ball, the kind of guy who makes you want to take a shower after shaking his hand. It didn’t take long before I caught him lying about the smallest things. This set off my intuition, which told me to walk away, but I decided to ignore what my gut was telling me. Instead, I purchased the condo because I was desperate for square footage. I’ll spare you the details but I entered into a post-purchase nightmare where the builder was hiring people to finish the itemized list and wasn’t paying them, defaulting on taxes due (which are paid in arrears in Chicago) and much more….

Needless to say this is not the only time I did a bad deal. But as I reflect on my numerous dumb decisions I can highlight a few common themes:

1. The counter party does something weird, such as telling small, insignificant, lies.
2. My intuition told me to stay away from the deal, but I ignore it and go through with the deal anyway.
3. I was desperate to get the deal done. I dismissed some facts and elected to believe the fairy tale the counter party had sold me. I simply wanted to close too badly.
4. I’m forced to cope with the effects of my actions, which can often take a long time to resolve.

ps. What actually spurred the idea for this blog post was an OpEd that I read in the NY Times about Newt Ginrich. The post set off my intuition and bothered me all day, but I prefer to talk entrepreneurship and will leave you to make your own political decisions.