Successful Startups Begin with Honesty and Communication

Classical references and relationship analogies abounded at Austin’s second Startup Grind. Our guest, Isaac Barchas, the director of the Austin Technology Incubator (ATI) at the University of Texas, provided actionable, frank consult to the entrepreneurs in attendance. There were two main themes that successful startups need– honesty and communication. And the right team – but if you don’t have the first two – you won’t get the third.

ATI’s mission is two-fold: promote economic development in Central Texas through entrepreneurial wealth and job creation and provide a practical learning environment in entrepreneurship for UT-Austin students. ATI accomplishes the first goal by getting the companies they accept funded. They have a pretty good track record. 75% of their companies get funded.

Isaac gave some insight into how they help their companies become fundable. One of the first exercises ATI companies do is map out, along different dimensions, what, specifically, needs to happen in the next 6, 12 and 18 months to get funded. He stressed this must be specific along the lines of “Acquire customers A, B and C” not “Get traction”. Then ATI helps the company honestly evaluate whether they have the experience and skills to deliver on those needs. It can be helpful to have a third-party perspective on this, as it is sometimes hard to see our own weaknesses.

He also stressed the need for complete honesty between co-founders. If you are not completely honest with each other you will not move forward together. Isaac’s observation is that early co-founding relationships are as intimate as a marriage. Pick a co-founder well, make sure that your communication styles are compatible and be honest with one another.

Speaking of communication, Isaac compared startup documents to sonnets. Just as sonnet has rules that make it a sonnet, there are four things that a founder must learn to communication within the rules that VCs expect. The elevator pitch, the executive summary, the pitch deck and the business plan. The pitch deck is not a 40-page power point with every thought you have had about the company in it. Isaac referred to it as the clothes you wear on a first date: conceal more than you reveal and generate interest. And while some VCs don’t want a business plan, Isaac found them helpful a la Eisenhower: “In preparing for battle I have always found that plans are useless, but planning is indispensable.”

A last bit of advice in the overlap between honesty and communication is prepping for a funding event. Identify which partner is going to take what roles in a funding event, talk about what terms are you comfortable with and learn how to evaluate a term sheet, before an event. And an important note, valuation is only one term on the term sheet and often not the most important one.

Many thanks to Isaac for his time and wisdom!