Editor’s note: Shlomo Kramer is founder, CEO and president of Imperva. He has a wealth of insights for startups, having been a board member and early angel investor in several security and enterprise software firms. In 2008 SC Magazine selected him as CEO of the year, and NetworkWorld designated him in 2006 as one of 20 luminaries who changed the network industry. We spoke with him about his advice for avoiding deadly startup pitfalls.
SandHill.com: What is the biggest pitfall that startups must avoid?
Shlomo Kramer: Actually the biggest pitfalls are around the basic elements that I believe are fundamental to the success of a startup. The first element for success is to find a real customer problem that is really painful, one where customers really need a solution.
SandHill.com: What is challenging about this?
Shlomo Kramer: It’s really important to accurately assess the timing of the market. A startup may be accurate in identifying a problem, but customers may not be ready to buy or the market might be five or six years out. That is the single deadliest mistake in building a startup — having the right vision and right answers but being ahead of the market.
In this case, the startup will run out of gas. Funding will be done and the startup won’t have enough customer feedback to build the solution. And in a few years somebody else will reap the benefit and build the solution. It’s a very painful mistake.
So when an entrepreneur looks at a problem, he needs to answer not only whether this is a real customer challenge but also whether the timing is right.
SandHill.com: I’ve talked with several startup CEOs who say that they ran into this problem. How can they avoid it?
Shlomo Kramer: I would divide the answer into two parts. One is the methodology of talking to customers, getting their feedback and assessing their willingness to buy. But the second part is a gut-level decision.
When I look at investing in startups, I look for people who have the gut feeling about the market. That can only be based on their deep knowledge of that particular domain, their experience from years of addressing customer problems in that domain. This knowledge makes a good bet for the timing of the market. You can research or survey the market; but at the end of the day, the core teams needs to have deep, deep knowledge. There’s no way around that.
SandHill.com: What is the second deadly pitfall?
Shlomo Kramer: The second one is around building the solution to the customer problem. There are two approaches that startups take. One is the approach that says we want to be a big company with a platform and with the ability to build a really significant business. The second approach says we need to solve a specific problem that people are willing to pay money for today. The trick is combining the two approaches.
The startup needs to very quickly come up with version 1.0 that is very thin and very targeted toward what they identified as the key problem of the customer — and do it ahead of everyone else and very efficiently from a resource perspective. But at the same time, they have to build the solution in a way that enables scaling it down the road and building a platform around it.
Missing that, in either direction — either by just building a product that is capable of doing one thing or by building it before having enough feedback to accurately navigate to the right place — is a key mistake.
SandHill.com: What is the third biggest challenge?
Shlomo Kramer: Third is building the organization. The challenge is how to bring the right people on board and how to sequence the hires. It’s similar to building the solution. The startup needs to bring on board people with enough hands-on experience to be effective right now but who are also scalable enough to handle the challenges two years down the road.
SandHill.com: Entrepreneurs have very special, unique characteristics, but do you think that some of those characteristics can be a hindrance to their success?
Shlomo Kramer: I think that in order to be successful as a company the key is not necessarily any one capability or characteristic of the entrepreneur but the ability of the entrepreneur to balance between conflicting capabilities and the ability to mitigate and compensate for one or the other.
SandHill.com: Please give me an example of two conflicting characteristics.
Shlomo Kramer: One is that the entrepreneur is rebellious and is against authority and against organization. They want to do their own thing. That’s why they have a strong drive to start something from scratch and will not join an existing organization. In conflict with this is the fact that the CEO or executive in the company needs to effectively build a system, build authority, build structure, build hierarchies — exactly the same things that the entrepreneur rejects.
If an organization has only one of the two, it’s an imbalanced organization. If it only has the structure, it will stifle and not be able to innovate and will fall behind. And if it has only the entrepreneurial innovative spirit, then it will be lost in the shuffle. The real art is mixing the two in an effective way, both from an organization perspective but primarily from an entrepreneur personality perspective. Key to success is the ability to internally balance between these two characteristics.
SandHill.com: How can they get around this fourth pitfall? How did you learn to do that?
Shlomo Kramer: The entrepreneur has to really want the company to be successful. Then he can extract from himself the right balance and force himself into this zone of balancing innovation and structure. An entrepreneur cannot become a successful CEO until he is able to do that. It’s one of the major challenges that an entrepreneur needs to overcome.
SandHill.com: Perhaps the remedy is to have a co-founder or president who has the other characteristic to create the balance.
Shlomo Kramer: That’s fine. It can be somebody else. But the two people will need the ability to get along with each other, which is also a challenge for entrepreneurs.
SandHill.com: What is your advice on how to find the right advisors for a startup?
Shlomo Kramer: I think that the right advisor needs to be somebody who has skin in the game. Consultants are consultants and people that give you advice are people who give you advice. I trust the people that are in the lifeboat with me.
As a young entrepreneur I looked for my investors to be my key advisors. And I try as an investor to be a key advisor to my portfolio companies. Entrepreneurs need to look for somebody who is day to day very close to what they are doing.
SandHill.com: You touched on this earlier, but what is the primary characteristic of a startup that you look for as an investor?
Shlomo Kramer: I look for a company that solves a really painful problem. It can be a new problem or an existing problem with a completely new solution or a disruptive idea in a completely established market. And I look to see if the founders come with a solution that is not only a point solution but can really grow to be a platform and a significant play down the road.
But I rank the quality of the founder team as the number-one characteristic for investing in success. By quality I mean both personal capabilities and domain knowledge. That’s crucial because a startup knows where it starts but doesn’t know where it will end, and the team needs to be able to navigate in rough conditions. At the end of the day, an investor bets on the founder team. I vet the team and look for a gut feel that they are smart enough and capable enough to take the startup all the way and to grow.
Shlomo Kramer is an angel investor and entrepreneur in the IT security market and is founder and CEO of Silicon Valley-based Imperva, which provides businesses with database and application security solutions.
Kathleen Goolsby is managing editor of SandHill.com.