Lessons from Selection is an essay series in which we explore some of the most poignant advice our founders receive during Endeavor’s International Selection Panels.
Depth Not Breadth: Why Focus Is Important.
OG Endeavor mentor and Baker Foundation Professor of Business Administration at Harvard Business School, Bill Sahlman, likes to say that the world has unlimited problems, and luckily for us, entrepreneurs view those problems as opportunities. What can often happen to ambitious, well-meaning founders, however, is that they can’t choose just one opportunity, and pursue too many revenue streams at once. In other words, the entrepreneur lacks focus, which is a common criticism of candidates who are not selected as Endeavor Entrepreneurs.
Lack of focus commonly takes on two forms. The first is rapid international expansion, without first winning the company’s core market. The second is expansion into several different verticals, without first laying a strong foundation in the core line of business.
An entrepreneur cannot be blamed for falling into either of these common traps. When you’re early on, you want to chase whatever revenue you can to try to offset your cash burn. As the company scales, it can be hard to outgrow this habit and zero in on a specific strategy. If growth is flagging in your core market, a greenfield opportunity abroad seems like an easy way to boost revenue and appease your investors. Or if you’re struggling to do the hard work of scaling your core business, the siren song of adjacent verticals sounds pretty sweet.
Here’s some beeswax.
As one of our panelists at this week’s ISP said, pursuing many different revenue streams is “appropriate for an entrepreneur to do, but only with the right rigor and ability to measure what is working and what isn’t.” In other words, too much optionality is distracting and is tantamount to fence-sitting. At some point you need to burn the ships and choose the one, two, or three things that you will be really good at, and execute on them. Otherwise, you’ll never achieve meaningful scale.
At Endeavor, we know that lack of focus is a predicative pathway for a company that will not scale successfully. With the help of our partners at Bain & Co., we analyzed ISP deliberation notes from over 80 candidates who are now Current Outliers (top 5% of Endeavor Entrepreneurs), Watchlist Outliers (soon to be top 5%), or fall within the remaining 90%+ of our portfolio to identify common themes from their selection process. Those candidates who during selection panelists raised concerns about lack of focus or having ambiguous plans over future strategy, never became Outliers. This is not to say that these businesses didn’t survive, but it does mean that they will probably be about $10M in revenue tops, and will never be what we call “Big Bubbles.”
Why is that? My personal theory (not endorsed by Bain) is that scaling a business to $200M+ in revenue often requires outside investment, and investors like proof points. As the legendary American VC John Doerr wrote in Measure What Matters, “Structured goals give backers a yardstick for success”. Pursuing every shiny new revenue opportunity makes measurement impossible, leaving proof points to rest on anecdotal or incomplete evidence. There aren’t many professional investors who will just take your word for it.
The lesson for scale up founders and would-be Outliers, then, is pretty clear: Win your core market before expanding internationally, and build your core business before taking on adjacencies. Stay focused. Burn the ships.
Kirk Benson is Endeavor’s Chief of Staff. Kirk supports Endeavor’s International Selection Panels by identifying and recruiting the top business minds in the world to evaluate and select the latest class of Endeavor Entrepreneurs. You can reach him on LinkedIn here.