A VC’s Perspective: Why is an Early-Stage Startup Like an Early-Stage State?

Startups aren’t like regular businesses. In some ways, they’re a lot more like the early years of the state. As we near Yom Ha’atzmaut in this complex year, this feels more relevant than ever. 

Not Business as Usual

There are some fundamental things that startups need which they share with every other kind of business, and I’m not going to talk about those here. These are factors like product-market fit, an audience willing to pay for what you’re offering, the basic ability to provide the service you promise including as you grow, and so on.

These things are hugely important – and the many founders who don’t give them enough importance stumble and, if they don’t learn fast enough, fail – but there’s nothing unique I can tell you as a VC with a ringside seat. It’s just, well, the facts of business. 

Startups need those things. But they need other things as well, and those which don’t have them, often simply don’t survive. 

Mission is Critical

I can’t underestimate how important a clear sense of mission is to an early-stage startup. It sounds fluffy, but in fact it’s make-or-break. 

Founders and early employers will be on a rollercoaster ride of hopes, disappointments, new ideas, sudden urgent deadlines, surprises (good and bad), panics and more. To thrive in these conditions, everyone needs to know they’re part of a team working determinedly as part of a mission. 

“Make money” isn’t enough. There needs to be something you’re proving, or new ground you’re breaking, or something you’re changing in the world.

I think of this every time I read about the early years of Israel, from the pre-state swamp draining project, to stories of the first planes, agriculture in the desert, somehow absorbing so many immigrants that the population doubled within a decade… The list is endless. 

About half of Israel’s combat soldiers in the War of Independence were Holocaust survivors. It is literally impossible for me to get my mind around that concept, no matter how many times I read it. Sometimes a sense mission is so profound it takes your breath away. 

A startup doesn’t need that level of dedication, or there wouldn’t be very many, but it does need a mission, because that’s where the drive comes from. Startups that don’t have it, don’t stay the course. 

Build to Change, Not to Last

Businesses and other organizations like to talk about building things to last. They like to have a legacy. Startups want to continue and grow, but through change, not durability. Adapting to customer needs, market factors, technological innovations and more are the key moves in this game. 

Israel’s early state was full of this energy and in many ways it still is, which might be why Israeli companies represent about 10% of global unicorns, even though Israelis are 0.12% of the global population. 

From one decade to the next, Israel reinvents itself. From the roads to the stores to the underpinnings of the national financial system to the startup nation, nothing here stays still. It’s built to continue, and to grow, through change – just like a startup. 

In my experience, startups that don’t breathe this approach will break under pressure and only avoid failure by luck. 

They Will Tell You it’s Crazy and That’s OK

In life, having a lot of experienced and intelligent people tell you that something is crazy is generally a sign that you need to have a good long rethink. In an early-stage startup, it’s par for the course. 

Most people assumed that the early state of Israel wouldn’t make it, because the odds seemed wildly against it, and if you missed the driving sense of mission the whole project made no sense. 

Starting a country made up of people from diverse nationalities, in a place with no natural resources and not enough water, surrounded by much larger and more powerful states that wanted to wipe it off the map, did not seem like a recipe for success. 

Insisting on using a national language only recently revived from the dead, claiming that many immigrants would flock to this unprepossessing place, and being almost broke probably felt like the nails in the coffin to impartial observers. 

Startups get much the same sort of reception. The thing is that impartial observers are just that – impartial. The things that change the paradigms of the world and what we think is possible in it always look crazy from outside the paradigm, because they don’t make sense according to the old rules. 

As a founder, you have to accept that this is the reality and be polite while internally ignoring this feedback. (Not the feedback that’s specific to products, user interface, branding and so forth!) If you have inner certainty about your startup, then you need to provide the power to keep it going.

Founders who lack this confidence, and put off making decisions, or invite a thousand and one opinions, or continually try to find a middle ground, fail. It’s harsh but true, just like the desert landscape in Israel which now, incredibly, provides 50% of the fresh vegetables Israel exports. 

To quote David Ben Gurion, “In Israel, in order to be a realist, you must believe in miracles. Courage is a special kind of knowledge: the knowledge of how to fear what ought to be feared and how not to fear what ought not to be feared.

Never Neglect the Intangibles

There are a host of practical details that you need to make a startup work, and as a VC we often get involved in helping with crucial hiring decisions, putting financial systems and cap tables in order, considering pricing, narrowing down initial target markets and so on. Like the vital infrastructure, logistics, systems and more that underpin a state, nothing works well without these things. 

All these elements demand attention. They metaphorically scream at you if you’re getting them wrong. You won’t miss them. 

What companies can miss, though, is how important intangible elements are as well. A sense of mission, in-built flexibility and agility, and a driving confidence aren’t just nice words on a PowerPoint slide, but rather essential ingredients without which most startups simply won’t make it. 

It’s easier to see why and how these qualities are so vital when you look at the early stage state of Israel, because the picture is painted large and you have the distance of history to provide perspective. From my ringside seat watching the hi-tech ecosystem, I can tell you that they matter just as much on the smaller scale of a startup.