(This article originally appeared on Forbes.)

If you were to take heed to the startup narrative depicted in the media and popular culture, you would think entrepreneurship is all fun and games. The entrepreneur’s journey has repeatedly been romanticized, glorified, and used as a vessel to tell the universal “feel good stories” of humanity – the “rags to riches” story, the “underdog that succeeds against all odds” story, and the like.

The truth is, most of these “feel good” stories about entrepreneurship are complete BS.

Startups are hard, and being an entrepreneur will often crush your soul. The real story of entrepreneurship is one of constant rejection, frayed relationships, inevitable betrayal, roller coasters of emotions, and a rocky process whereby “work” and “life” become one.

I have started nine companies now, and while most have been successful, some have not. Through the ups and downs and everything I have learned (and continue to learn), I can assure you the following statement is true:

As an entrepreneur, you will be screwed and you will be humbled. Over and over again.

When you’re first launching a company, you will be humbled almost hourly. It will take you 100 “no’s” to get a single “yes”, and seemingly nobody will want to talk to you. If you are able to push through it and build a successful company, you still get humbled, but just a little less often. No matter how successful you become, you will never stop being humbled as an entrepreneur because you will never stop learning. They are one in the same.

The moment you think you know everything as an entrepreneur, you have failed.

But then here’s the kicker. You will also get screwed. Unfortunately, for every entrepreneur that works hard and does things the right way, there are five more that do not. The slightest modicum of success will attract the liars and leeches. Your stuff will get copied and stolen, your name may be defamed, and people will chip away at your years of hard work like a nagging woodpecker that never rests.

I would go as far as to say that any entrepreneur that doesn’t have multiple people trying to copy or screw them probably hasn’t accomplished all that much.

That’s the glum reality of entrepreneurship, but it’s not all bad. Personally I wouldn’t trade it for anything, and there are legions of others out there that feel the same way. But its certainly not for everyone, and in my opinion most people get into entrepreneurship without understanding the herculean effort, dedication, and determination involved.

If you are just crazy enough to try and build something of your own, something that changes even just a little bit of the world out there, here are the two best pieces of advice I can give you to survive the journey:

1. Have a clear vision, and stick to it

I find a lot of confusion when it comes to the concept of “Company Vision”, because if you were to do a Google search there are many convoluted definitions out there. This is mostly due to the fact that in big companies, “vision” is more commonly a term used in HR, PR, and other forms corporate communication.

However, forming a clear vision for your startup is perhaps the most important early thing an entrepreneur can do. There are many definitions out there, but here is the simplest one I can give you:

A startup’s vision is their interpretation of what the world will look like in the future, and how their venture will be part of this future.

Your vision serves as the company’s “North Star”, and should guide each and every decision you make as a company. I repeat: your vision should guide each and every decision you make as a company. This is where most entrepreneurs go awry.

Your strategy to carry out your vision (your “mission”) may change, but your vision cannot. Is it possible that your vision is incorrect? Of course. In fact, it’s more than likely, because we can’t see the future. But that’s not the point.

Once you have established your vision, you have created your bullseye, and now it’s just a matter of figuring out how to execute and fire arrows to hit it. If you keep changing the location of the bullseye, your job of hitting it becomes much, much harder.

(This article originally appeared on Forbes.)

There are many problems that the “Brexit” causes across Europe, but with any tumultuous change, the weakest entities suffer the most. Who are the weakest in business by definition?

Startups are.

It is true that the long term ramifications of the Brexit on European startups, and European business in general, are unknown. There are many forthcoming trade deals and pacts that will ultimately determine that.

But when you run an early-stage startup, you are less interested in the long term, and more concerned about the next 6 to 24 months (a typical startup’s ”runway” of cash in the bank). The ramifications of the Brexit on this short-term timeframe are much, much clearer.

The “United” Kingdom just punched the European startup scene in the face. 

Here is what I expect to see from the European startup scene in the next 6-24 months, both good and bad.

1. European startup funding will fall off a cliff.

London is a key component of the European venture capital scene, comprising of approximately 50% of European startup funding (especially in the later stages). As a result of the Brexit, I believe that the amount of venture funding for all European startups will drop by 20% or greater by the end of the year.

Why?  I simply do not see how London VCs can continue “business as usual” until the regulatory implications of the Brexit are better understood.  This process will take a while, and it will also be highly publicized, causing increased angst. When the funding rate of London VCs slows down (particularly in the later stages), early stage VCs from all across Europe will be forced to slow down as well.

Raising funding in Europe just became much, much harder. 

2. Many entrepreneurs will leave.

When the uncertainty of the Brexit causes startup funding rates across Europe to decrease, experienced entrepreneurs that need to raise money within 6 to 24 months will choose to go to where the money is: Silicon Valley, New York, Singapore, etc.

This is very unfortunate, because I truly believe that great companies can be built anywhere. However, in times of distress, a startup founder needs to do everything in their power to “make payroll”, and if the money to stay solvent is not in Europe they might have no choice but to move.

In total, I would expect to see half of the top 5% of entrepreneurs leave the region within the next two years.

3. Incorporation in the UK will fall out of favor.

The United Kingdom has become one of the three most attractive global startup hubs to incorporate a business (along with Delaware and Singapore) due to three key advantages:

1. Favorable rule of law
2. Plentiful available capital
3. Market access to the entirety of Europe

However, after the Brexit, two of the three advantages (available capital and market access) are now gone for at least the next 6-24 months. Plus, the rule of law may be changing, too.

The rate of companies incorporating in the UK will nosedive, and in my opinion, no startup should incorporate in the UK in the near term.

So What is the Good News?

Startups have a lot of problems as it is, so adding uncertainty in their sources of capital is never a great idea. However, there are two positives that will come out of the Brexit in the short-term.

First, if London is out, then there is an opportunity for another city to become to the center of the Euro startup scene. This will cause many governments, and possibly even the EU as a whole, to step up their game with regards to startups and small businesses.

Side note: There are many candidates who can seize this opportunity, but to me, Berlin is best positioned to become the undisputed tech hub of Europe. Cheaper and more centrally located than London, and with a relatively favorable rule of law, I believe that billions of dollars that once populated UK venture capital funds will gradually move over to German funds, and the German efficiency will be put to work.

The second benefit is that being born in hard times makes young companies hungrier, leaner, and more efficient. Many of the defining tech companies of our generation were formed in times when startup funding was not as readily available as it is today.

With less capital to grow headcount and attack new markets, European startups have an opportunity to focus more on things core to their business – like refining their product, delighting their customers, and developing profitable revenue streams.

This will lead to the formation of more enduring and cash-flow positive businesses.

Plus, it might be their only choice.

(This article originally appeared on Forbes.)

With all the “boom” and “bubble” talk around startups in the media, you might be led to think that we are traveling at light-warp speed towards a dramatic, fiery, and binary outcome – a continued “boom”, or a bubble “burst”.

The less-interesting reality, however, is much more nuanced. Markets are not binary.

For example, I fully expect startup funding levels in 2016 to exceed those of 2015. However, there are also many untenable conditions in the world of startup financing, so I believe there will also be a number of market corrections.

Here are my five predictions for changes in startup funding you can expect to see over the next 12 months.

1. The Seed Valuation Slump

In 2014 and 2015, angel and seed valuations skyrocketed in a “Seed Surge”, with post money valuations regularly running between $10 MM and $30 MM for companies in Silicon Valley and other prime markets. This is pricing out a lot of investors from participating in Series A rounds.

In 2016, I believe post-money valuations will return to more reasonable levels, with angel deals seeing $3 MM to $8 MM valuations and seed deals seeing $5 MM to $15 MM valuations.

2. The Double Digit Valuation Dump

In 2016, thousands of the angel and seed-stage companies that raised money with valuations in the double digit millions will be left without any future ability to raise capital. Many of these companies have already returned to the angel and seed markets for second, third and fourth anemic rounds of funding, often having flat valuations over a period of 18 to 24 months. Unable to generate enough traction to get a Series B and too expensive for the Series A investors, these companies will unfortunately be stranded without any financing options available.

(This article originally appeared on Forbes.)

Billion dollar companies are being created at a faster pace than ever before, so there are plenty of opinions in the bubble or bust debate. I won’t bore you with more.

What we discuss often at the Founder Institute, however, is how these billion dollar companies are being created in our current startup growth climate.

I believe that if you look at it objectively, there is a method to the “madness” of these so-called “Unicorn” companies.

The Method

The most recent Unicorns are being developed in as little as 36 months, with the combination of strong Founders, forward-thinking investors, and aggressive teams using a cycle of three main tactics: (1) the Push, (2) the Markup, and (3) the Backfill.

1. The Push

The “Push” is a seemingly unattainable growth plan designed by the Founders of a startup looking to create immense shareholder value, or build a truly global and transformative company in the quickest amount of time possible. Whereas a bootstrapping company may aim for a growth rate of 10% per quarter, a startup pursuing a “Push” may set moonshot goals over 15% week over week growth.

I like to call these “Ludicrous-Mode Growth” plans.

To execute these plans, the company will look to hire the best talent available, secure a staggering array of users and customers, and as a whole demonstrate that they will dominate the market in a world defined by Pareto distributions and the Power Law. Often times, the plan for this “Push” will be discussed and negotiated with their investors, who then fund with the company with a massive “Markup.”

2. The Markup

Rather than fund a company on the future value of a sustainable growth plan, the “Markup” is an enormous funding round that values the startup at the future expected valuation of a company that flawlessly executes their “Ludicrous-Mode Growth” plan outlined in the “Push”.

For example, today you will see a ten person, pre-revenue company with a solid “Push” plan get offers for a pre-money valuation anywhere from $125 MM to $250 MM, raising $30 MM to $50 MM or more.

The first modern “Markup” round was done with Facebook FB -0.29% in May 2009, valuing the company at $10 billion. Do you remember how shocking that valuation was at the time?

Since then, the phenomenon has become more commonplace, and almost every surprisingly large funding round today is a version of the “Markup”.

3. The Backfill

Now is when things really start to get tricky. When the startup takes the money from a “Markup” round, they have pushed all their chips into a high-pressure game of “Ludicrous Mode”-scaling to “Backfill” the value they have pledged to create. These days, the team only has about six to twelve months to build a business worth the valuations set in the “Markup” round.

This is a lot easier said than done, of course, because scaling at “Ludicrous Mode” is only possible for the most talented and aggressive teams, in the most opportune markets. If the team is successful and is able to “Backfill” the value of the “Markup”, they then have the opportunity to create another “Push”, raise another round of funding at a huge “Markup”, and prove their worth yet again to “Backfill” that value.

The modern day Unicorn is a company that was able to successfully execute this cycle of Push -> Markup -> Backfill until hitting the billion dollar valuation in their latest “Markup”.

You’ll read more and more about these “Dead Unicorns” as time goes on, but let’s be clear: these companies are neither failures, nor worthless. These companies and their investors were simply following the “Ludicrous Mode Growth” mindset that has helped create the Ubers of the world, but the company was unable to “Backfill” the value of the “Markup” in their latest cycle.

Risks of this Method

On the investor side, “Markup” rounds now typically also involve the acquisition of stock on the secondary markets at a much lower valuation. For example, a new investor might buy 1 MM shares of stock at $100 per share from the company, and then immediately go buy another 1 MM shares from early angels, employees and others at a value of $50 per share. By employing this strategy, the blended average share price for the stock that the investor acquired is $75, providing the investor with an immediate “markup” on their overall investment.

In reality, however, this $75 blended price point may be closer to an “old school” venture valuation. Some prominent new investors are actually starting to lock in the secondary stock acquisition amounts and prices right into the term sheet, forcing the management team to secure discounted stock or risk getting nothing. This is a questionable practice, at best.

On the company side, you are starting to see the results of some corners cut in the face of extreme demands of the “Backfill”, with some prominent cases in the media recently. While I do not know whether the details of the Theranos reports are true – does anybody find the idea of a company doing anything to deliver a service that was predicated by a massive “Markup” round surprising?

You’ll be seeing more stories like this, for sure.

The Future

For some companies, the Push -> Markup -> Backfillmethod is the way to go, but for many others it is not.  One of the things we discuss with the aspiring entrepreneurs in our Founder Institute program is what their goals are, and how best to achieve them. If you aren’t looking to change the world or build a billion dollar business as quickly as possible, then avoid this strategy at all costs.

And, while there are risks and definitely abuses, you can’t deny that the method is working for many companies to create immense value at record speeds.

What’s more, Unicorns are no longer an exclusive phenomenon to Silicon Valley, or even the United States. As of 2015, less than 50% of the Unicorns were created in Silicon Valley, and only about 60% are from the United States. Major pockets of Unicorns are being created in Asia (19%), Europe (8%) and India (5%) with additional pockets in Canada (2%), Israel (2%) and even Australia (1%).

From Atlassian (Sydney) to Zenefits (San Francisco), talented Founders all over the world are working with forward-looking investors to create enormous shareholder value.

(This article originally appeared on Linkedin.)

The Lean Startup movement has inarguably changed the global startup landscape over the last few years, providing a simple methodology for resource and time-constrained companies to quickly learn from their customers, iterate their product development, and ultimately create products that people want.

However, in practice, some teachings of the lean startup are easily misinterpreted, leading many startup founders to “pivot” too quickly, too drastically, or without proper validation (or invalidation).

As Eric Ries states, “a pivot is a change in strategy, not vision.”  Unfortunately, this is definitely not how I see the lean startup practiced by many founders across the globe today…

Recently, we interviewed several Founder Institute Graduate companies that were dead or hibernating, and a common theme we identified with these founders was a lack of passion for the problem their product was solving. These founders had either (1) pursued solving a problem they were not passionate about from the beginning, or (2) pivoted so many times that before they knew it, they were building a product that didn’t fit their original vision for the company.

So how do you solve this problem?  How can you ensure that a Founder has passion and a strong vision for their company, but can also properly interpret the data and feedback they’re receiving to correctly make the decision to pivot or persevere?

In my experience at the Founder Institute, the best way to do this is to ensure two things in the early stages of any company:

1. The Founder needs to be properly testing their riskiest assumptions, with well designed and executed tests.
2. The Founder needs to have a GREAT answer to the question, “why are you building this company?”

I recently wrote an article in Forbes on the “why are you building this company” question, because it is my favorite question to ask an early-stage entrepreneur. As I like to say, if you don’t have a good  reason ‘why’ you are building a company, you will never have a good “what.” 

For a Founder to have a GREAT answer to this question, their “why” needs to be formed from the intersection of a customer problem and their personal strengths and passions. If a Founder can’t align these elements, then their business does not have a high chance of succeeding.

In the end, a founder needs to conduct effective tests, and balance feedback from customers with their original passion and vision for the business. A “pivot” should not change your vision for the company, and in many cases, it is, in fact, better to “persevere” than to “pivot”.

At the last Startup Festival in Montreal (a GREAT conference BTW), I gave a keynote on the topic, which you can watch below:

P.S. If you are passionate about helping founders build enduring companies that are aligned with their passion and vision, then please join us at the Founder Institute as a Local Leader: http://fi.co/lead. 

(This article originally appeared on Forbes.)

With the growth of the global startup ecosystem, I see more and more people “playing founder” than ever before. Attracted by large amounts of venture capital and the mainstream hype arounds startups, these entrepreneurs have entered the “startup game” for one simple reason: to become the next billion dollar startup.

They pitch their ideas with slick presentations, “hockey-stick” graphs, and in-depth statistics on the size of their market and target customer. They have quick, concrete answers for every technical question I ask about their business model.

But, when I ask these entrepreneurs one fundamental question, they are often stumped.

Why are you building this company?

This is my favorite question to ask entrepreneurs because if you don’t have a good  reason ‘why’ you are building a company, you will never have a good “what.”

This is true for three main reasons:

1. Without a Clear “Why,” You Can’t Develop a Clear Vision 

Why you are building a company will form the foundation of your company’s vision – which is essentially your organizational “north star” for your business strategy and culture. If you don’t have a strong answer for “why” you are building your company, how can you possibly develop a clear vision for what it will aim to accomplish in 5, 10, or 20 years?

2. Without a Clear “Why,” You Won’t Pitch Your Business Effectively

No matter what business you are in, you will need to pitch prospective customers, employees, partners, press, investors, and more. In the early days, you will literally pitch your company over a thousand times a week.

In order to pitch your business effectively, you need to be passionate about the problem you’re solving, and convince people that you are the right person to solve the problem. If you don’t have a good reason for why you are starting the company, this will be extremely hard to do.

In particular, investors will judge your intentions just as much, if not more, than the business itself. In their head they are asking questions like, “What is your motivation behind doing this?,” “will you give up if things start getting dire?”, “is this more than just a business project for you?”. Similarly, to convince your first employees to come on board for little to no salary, you will need to inspire and rally them around your passion for the business.

Pitching your business without having a good reason for starting the company is like doing it with one hand tied behind your back.

3. Without a Clear “Why,” You Won’t Survive the Journey

Entrepreneurship is not fun and games, and as an early-stage entrepreneur, non-stop work and rejection will become your new normal. In addition, you likely will not even know if your business is viable for several years. It will be a grind.

In order to power through the hard times of entrepreneurship, money cannot be your main source of motivation. As Elon Muskfamously said, “Being an entrepreneur is like eating glass and staring into the abyss of death.” Only the most passionate founders will survive.

How to Nail Down Your “Why”

So, how do you determine your “why”?

Your answer to “why are you building this company” should be formed from the intersection of a customer problem and your personal strengths and passions. If you can’t align these elements, then your business does not have a high chance of succeeding.

Perhaps the best way to explain this is through providing my answer to why I started the Founder Institute. In short:

Tens of thousands of companies are being started every year, but more than half of them fail right away and only a small percentage survive for even a few years. I have built 9 different companies in my career, including a very popular site to help entrepreneurs raise funding, so helping early-stage entrepreneurs is both my passion and my strength. So, I created the Founder Institute to reduce the rate of startup failure by providing entrepreneurs with structured training at the time where most fail – at the very beginning of the process.

As you can see, the customer problem I am solving is perfectly aligned with my personal strengths and passions. I love talking about new ideas, starting companies, and building businesses, and with my company I get to do these things every day.  I have been able to rally entrepreneurs across the globe with this “why”, and it is what keeps me working 100+ hour weeks to continue building the company.

So, now I ask you. Why are you starting this company?

(This post originally appeared on Linkedin.)

I often get asked “what does it take to be a successful entrepreneur?”.

In my opinion, successful entrepreneurship is a combination of three things: (1) Genetics, (2) Circumstance, and (3) Perseverance.

Let’s go through all three.

1. Genetics

Over the last six years, we at the Founder Institute have been social-science testing over twenty thousand prospective entrepreneurs, measuring things like “Big 5 Personality Traits”, Fluid Intelligence, IQ, and more. We then watched who became successful, and correlated back the measured traits that best predicted success, in a scientific process along with highly respected social scientists.

The traits that best predict entrepreneurial success are genetic, such as Fluid Intelligence and Openness. BUT, just because you have traits that MAY make you successful as an entrepreneur, does not mean that you WILL be successful. Similarly, just because you are tall does not mean that you are good basketball player.

In other words, you need the raw materials, but you also need other things.

2. Circumstance

Being in the proverbial “right place at the right time” matters a lot towards your ultimate success as an entrepreneur.

Timing is everything (…almost).

For example, Michael Diamant started iClips, a site exactly like YouTube, a few years before YouTube launched. iClips was a truly well-executed business, but the necessary bandwidth, camera penetration, and streaming technology adoption did not yet exist for it to gain massive traction. He was simply too early for the market.

Circumstances are not all market-specific, either. You can have perfect market-timing, but your personal circumstances might not be optimal. For example, you could have the best idea and timing while you are a high school student, and start to execute on that idea to the the best of your ability – but then a veteran entrepreneur does the same business with millions in venture capital and captures the whole market right from under your feet.

Some circumstances are in your control, and some are simply outside of your control, but most successful entrepreneurs will concede that some of their success is attributable to circumstance.

3. Perservance

You only fail in your business when you actually give up, so, in fact, no business would ever fail if people persevered.

I know the Founders of some of the most successful technology companies in the world, and there almost always were (and still are) times when the Founders simply refused to give up despite unbelievable problems, stress, and negative signaling.

Entrepreneurship is like eating glass and walking on hot coals at the same time” – Elon Musk at the Founder Showcase

An entrepreneur faces all of the debilitating problems of their own life, coupled with all of the personal problems of their team, as well as hostile operating environments, limited capital, stretched resources, no time, regulatory burdens, changing technology… the list is endless.

The loneliness and darkness of entrepreneurship is not discussed very often, but it is very, very real.

Those that persevere succeed. Those that do not, do not.

This fact is why I created the Founder Institute, to create a teamwork-oriented environment to help entrepreneurs persevere, and the Founder Lab, to show entrepreneurs the best practices for building an enduring startup in Silicon Valley.

A Side Note on Ideas

You will notice that I have not mentioned your idea as important to success as an entrepreneur. This is intentional.

I am not saying the ideas are worthless, because they are not. And, there are definitely ways to help you determine if a startup idea is good or bad. But, the key operator in my last sentence is “help”. Nobody can ever know for sure, and at best you are making an educated guess.

We see “great ideas” flop all the time, while “bad ideas” become worth billions. For example, Google was a “bad idea”: it was another search engine at a time when everyone thought search engines were dead. Ebay was another “bad idea”: they asked you to send used merchandise through the mail to people that you met online, and mail a $0.23 commission check to eBay (when stamps cost $0.25). These “bad ideas” have a combined market cap of $440 billion today.

In the end, genetics, circumstance, and perseverance are much more important for entrepreneurs than ideas.