Riskmasters Know How to Prioritize

You have probably already heard that VCs love to back serial entrepreneurs, but why is that?  What makes them special?

Well, it's a mix of things, but one trait I've witnessed across a decent sample size is the ability to prioritize and reprioritize in a nimble, but thoughtful fashion.  All entrepreneurs are risk-takers, but the best are Riskmasters.  The skill shows itself early in the life of a company, particularly when founders plan their funding path and use of seed funds.

Given many possible to-dos in the early life of a company, first-time entrepreneurs will often prioritize the easiest items first or focus on developing the full-function product they envision.

Serial entrepreneurs, however, immediately start prioritizing risk reduction.  In particular, they focus on the todos that address the largest risks in the business or the largest hurdles to securing institutional funding.  Those may be the hardest todos, but they know all other progress is a phantom until the most important risks are addressed.

One of the most effective prioritizations is to realize that first generation products don't have to do everything.  In fact, it's worthwhile to ask "what is the minimum the product has to do for a customer to buy or an investor to feel core technology risk has been removed?".  Reaching a v1.0 sale is huge for company value creation and attracting investors.

The same holds true for management risk.  Investors don't expect a full management team, particularly if it's filled with B players.  Serial entrepreneurs prioritize the key hires that are needed to execute the business or secure funding.

Lastly, the same holds true for market risk.  If the key question for investors is market size, serial entrepreneurs prioritize data gathering to prove a large market.  If the key question is competitive threats, they prioritize functionality or partnerships that provide a unique competitive advantage.

The benefits of this prioritization are multifold, but at least two important outcomes occur early.

1) Seed capital required (and resulting dilution) is minimized because funding isn't required to boil the ocean, but only to accomplish specific risk-reducing milestones; and

2) Institutional investment comes earlier as key risks are removed, providing capital and relationships to accelerate the business sooner.

What are some examples you've seen of Riskmasters, where prioritization simplified execution or fundraising?

FYI: Although I used serial entrepreneurs as an example of a Riskmaster, they can come in all shapes, sizes and experience levels.  My former partner Tim Draper (pictured above), who coined the term Riskmaster for entrepreneurs, has started his own blog on entrepreneurship and venture capital.  If you haven't already subscribed, you probably should -- the man is smart and crazy, like a fox.