How Entrepreneurship is Like Surfing

No, this analogy isn’t about staying afloat, or skimming across issues without diving deep, or

facing waves of crises. It’s a way of thinking about a company from an investor’s perspective.

In order to surf you need three things: a surfer, a surfboard, and an ocean. In this framework,

the surfer represents the management team, with all its skills, shortcomings, experiences, and connections. The surfboard is the company itself: its assets, reputation, technology, systems, and people. And the ocean is the market, however the company defines or experiences it.

If you’re an average surfer with an average board and average waves, you can have an

average surfing experience. If the waves are terrific, you might have an excellent time. But even if you are a world-class surfer with a fantastic board, with no waves you won’t surf. That’s why professional investors (and smart entrepreneurs) are so focused on the market opportunity: its size and growth prospects, competitive landscape, and difficulty of penetration. No waves, no surfing. No market, no business.

Of course, if you want the best performance – and who doesn’t? – you need the best surfers.

That’s why top investors bet on outstanding entrepreneurs and great management teams, often for multiple investment rounds and through multiple companies. Pairing excellent managers with mouth-watering market opportunities is every venture capitalist’s dream.

Then there’s the surfboard. There are good and bad boards, but the difference between those is less significant than the difference between excellent and poor managers. That’s why venture capitalists are more concerned with the management teams than with the state of the company. On the other hand, you can own a surfboard (company), but you can’t really own a surfer (management team). Even with golden handcuffs and noncompete agreements founders and their teams can quit, revolt, or become demotivated. So while investors do all they can to retain top managers, they make sure their ownership of company assets is airtight and the value is protected.

These principles are clear in the abstract but often messier in real life. One of my companies

had a product line that I particularly liked. I personally secured the first paying customers and

hired a manager to take over. Growth stalled. Was it the surfer, the board, or the ocean? I

worked closely with the manager, both to observe and help. His performance was solid; the

problem wasn’t the surfer. Next we examined the board. We spoke to existing customers (who generally were satisfied) and to prospects (who were intrigued but not buying). We explored product modifications with our internal team and with customers, but none were likely to have a meaningful impact on sales. The surfboard was fine but there weren’t enough buyers for it. Eventually it became clear that the ocean was too small. While we were meeting the needs of current customers there simply wasn’t a large enough market to warrant further investment. I closed the product line and the manager moved on. This was emotionally painful, but that didn’t change the market reality.

What’s the lesson for entrepreneurs here? Improve what you can change and choose the

best of what you can’t. Work to maximize your own skills, recruit outstanding co-founders and managers, and create the best company and products. But know that all that won’t matter if you pick the wrong market.

In my experience the most common reason young companies fail is because they don’t

achieve product-market fit. You can change your product but it’s very difficult to change your

market; better to find a new one. The key lessons I’ve learned about market validation are:

• Research your potential markets deeply and be brutally honest with yourself about them: their size, growth prospects, difficulty of penetration, and competition. One of my companies sold subscription data to biopharmaceutical companies cut by disease area. There was a cost for us to develop the data for each area and I insisted that there be a minimum number of potential customers in any area before we invested in developing a product there.

• Rigorously test your value proposition so you’re basing your business on data, not just hope. The best validation is getting a customer to actually pay money for the product, not just say they would. Doing so has the added benefit of helping you understand how best to sell the product.

• Explore alternative or additional markets for your products. Some potential alternatives may be obvious but others may be more subtle. I found that sometimes when I couldn’t get end users to pay for a product directly I could convince their suppliers to sponsor access to my product.

• Keep talking to customers. I had my assistant schedule regular calls for me to touch base with all of our largest customers simply to thank them and discuss their key challenges – not to sell to them (though sales leads often came out of these calls). I regularly made visits with my sales reps to keep listening to the market, since needs and competition changed constantly.

Pursuing the right market is key to your company’s survival and growth. Without a good ocean,

you won’t do much surfing – and may even wind up underwater.