The week before I moved to Los Angeles, I had a memorable conversation with a friend of mine in Chicago.
We were both new entrepreneurs. He was 9 months into his new agency and had started to employ a few people. I had very recently taken the leap, fell into the world of executive ghostwriting, and had literally just convinced one of my best friends to quit his job and join me in turning my unique writing process into a thought leadership content agency (now Digital Press with 50 clients around the world).
Saying my goodbyes to my Chicago friends before moving, we met up one last time at Soho House for our philosophical Malbec + olives conversation. I would miss these kinds of conversations.
“Do you think LA’s startup scene will be that different from Chicago’s?” I asked.
The hostess was opening a fresh bottle and pouring us glasses.
“I think it’s going to be the complete opposite,” he said. “Chicago is very sales oriented. Safe businesses. LA and Silicon Valley don’t care about being profitable. They care about building toward an exit.”
At the time, I didn’t understand what any of that meant.
And then I showed up to LA.
After being here for a year and a half, and even though I am not living directly in “Silicon Valley,” I can say with certainty my friend was right.
The west coast is nothing like Chicago. Or New York. Or Atlanta. Or Seattle. Or any other startup hub in the United States. By proximity alone, it’s nearly impossible to play the game of entrepreneurship here without running into someone working toward something teetering the gap between “brilliant” and “insane.” From AI to VR to blockchain to cloud computing to enterprise software to entertainment to celebrity endorsements to influencer sponsorships for things that haven’t even been built yet, the sheer number of projects swinging for the fences is a far cry from what I’d been exposed to in Chicago.
The perfect metaphor would be this: one night, I was attending a private mastermind dinner at a $15M home in Hollywood hills where I heard an executive from NASA, a former gold medal Olympian, and an executive from Disney, speak on lessons learned from their respective journies. It was a Friday night, and everyone in attendance was a founder or author or speaker or someone. Two open bars. Full staff in the home. These kinds of things happen regularly here.
I was having a conversation with a woman, an actress who had moved here from New York, and I asked her what the differences were between the two cities.
“For acting, specifically, you go to New York to master your craft. You come to LA to get famous.”
For entrepreneurship, I feel like that statement is also true. Except for the fact that you come here to master your craft too. Nowhere else comes close.
However, with all this opportunity come a lot of secrets — and I wouldn’t necessarily call them “dark” in the sense that they’re bad, but more so that they’re naked to the eye.
See, what I’ve learned in my short time living and playing within arguably the most competitive startup scene in country, and certainly in the Top 5 of the world, is that this game operates by different rules. These rules do not make sense to 99.8% of the population. These rules are not explained anywhere, nor are they easy to understand even if you’re playing the game. This is a different way of life, a different way of thinking, and a different way of making decisions — and it only makes sense to the people who are playing the game right there with you.
Here are a handful I’ve learned already for myself:
1. “High growth” is a term that requires context in order to be understood.
For example, my company Digital Press grew from me and my co-founder on his apartment couch to 20 full-time employees in our first 12 months.
For a service company, and by most people’s standards for building a business (say if I was still in Chicago), this would be absurd growth. Compared to a heavily funded company, it’s not that this would be seen as “sub-par growth.” It’s just that a heavily funded startup wouldn’t be (necessarily) looking to be cash flow positive in the first 12 months.
That’s not the goal they’re working toward, which means we’re really not even in the same ballpark to begin with.
2. During fundraising, founders get stuck in script loops.
I can’t tell you how many times I’ve found myself in conversations with other founders realizing about halfway through that they were practicing their pitch on me.
It’s not that they wanted me to invest or they wanted me to be part of their idea. It’s that I was an easy audience to practice in front of. So they’d subtly mention the new partnerships they’re working on, or what the vision is for the company, and it would become apparent to me that I could stop breathing mid-sentence and they probably wouldn’t notice.
3. Your startup is worth what you can convince someone else it’s worth.
I know founders who have raised very little at very bad valuations for absolutely terrific, sound, and later successful ideas. And I know founders who have raised insane amounts of money for ideas that haven’t been tested, have close to no merit and are propped up on faulty assumptions.
Both exist in this world.
And for every smart investor who can see through the ladder, there are 10 wealthy individuals who want to play Startup Roulette and put money behind anything with a pitch deck.
4. The best fundraisers don’t pitch. They lure.
What makes Shark Tank such a great show for viewers interested in business is that it reduces investing down to a transaction: you say your idea, and investors decide whether they like it or not.
But out in the real world, this isn’t how fundraising works — not really.
On the surface, this is what you do, but the way you approach these conversations can mean the difference between you giving up 50% of your company or 15% of your company. The difference has nothing to do with the quality of your idea. You could pitch the exact same idea two different ways, and the outcomes would be drastically different. And that’s because bad fundraisers “pitch” (Hey! Here’s my idea. Want to invest in me?). And great fundraisers “lure” (We’re actually about to launch our beta, and the feedback we’ve gotten so far has been incredible. You know I was just having lunch with…).
The latter is an art.
5. Growth either comes through profitability, or it comes through raising capital.
This is really difficult for new entrepreneurs to understand, and I know because I’ve gone through it.
When you first start out, or even before you’ve started anything at all, you have this “idea” as to what success means to you. Some people are more attracted to the idea of a business that employs dozens, if not hundreds of people, provides a service or sells a product and generates cash. Cold hard cash.
Other entrepreneurs want nothing to do with that sort of business, and instead want to work toward building a software product millions of people use — and how that software product will make money, they’ll figure out later, with their own personal goal of being acquired for 8 or 9 figures by a larger competitor in the space.
Both these routes are viable.
However both require very, very different strategies in order to be successful. If you’re building company A, then your growth will be dependent upon your ability to be profitable. And if you’re building company B, then your growth will be dependent upon reaching the next milestone required to attract more outside capital. These are very, very different games. But to someone watching from the sidelines, they look so similar — and this is why so many first-time entrepreneurs fail.
They step onto the ice, but have no idea which game they’re actually playing.