Startups (are) for dummies


OK not really..and given that I have been involved with more than 20 start ups in my time I am kicking myself just as hard as the next guy who dreams of bootstrapping his (or her) self to technology stardom.

Truth be told startups drive innovation in high-tech. Progress would be slower if garage entrepreneurs, home coders, open source proponents and other “not-for-profit” developers were not so incredibly active in the high-tech industry.

I stumbled across this essay by Paul Graham (local pdf copy here) that had me laughing and crying and nodding my head in self-deprecating acknowledgement all at the same time. It feels like I have a story (or three) for ever point that he makes. Given that I get asked about once a week whether I think an idea is worthy of investigation and/or eventually turning into a startup I thought I would add my two cents to Paul’s essay.

Now don’t get me wrong, I have never taken a startup all the way to a billion (or even million) dollar takeout by a larger company. The most successful I have been is running (with a partner) a small consulting company for 5 years that kept 6 techies gainfully employed. I have started, either alone or with other people 4 companies. I have been involved at the early stages of at least 20 others, a few of which became viable corporate entities, most of which ended after a few conversations at the same coffee table in the same coffee shop where they started.

I know I have become jaded by failure and burnt out by the endless hours and “wasted” effort but I know that each new idea creates an enthusiastic and optimistic rush of excitement and desire to jump right into it. I like to think I am maturing as an engineer and becoming more deliberate in my assessment of each new idea.

I have probably invested $150K…real cash dollars…in various initiatives, I don’t even want to think about the total value (cost!) of salary I have deferred in return for shares or options in various start ups.

I have spent countless hours trying to convince investors to put money in to various ventures and even more time trying to come up with rational arguments to use to convince said investors to part with their hard earned money.

I have spent innumerable other hours trying to convince normally intelligent engineers and programmers to throw logic and their better judgement to the wind  to come work for the startup of the week for considerably less than they are worth on the open market.

Both types of conversations always leave me feeling a bit dirty and this leads me to my first point about startups…

1. Get down on your knees and thank anyone who is kind enough to give you money, time, advice, equipment or even free coffee and bagels for your startup. Given that 9 out of 10 venture funded startups eventually fail, 99 out of 100 self funded startups fail and probably 999 out of 1000 startup ideas die on the vine, anyone who gives you anything is making the equivalent of a charitable donation without the benefit of a tax receipt.

The easiest way to fund a start up is to do it yourself. If you are lucky enough to have an existing venture that you can use to kick it off or you get a nice severance from another company or your domestic partner is filthy rich or you have a nice nest egg stashed away and are willing to roll the dice with it…off you go. But remember the failure rate for startups, remember that the money you spend is far safer buried in the backyard or hidden under your mattress until you regain your sanity.

This brings me to my second point…

2. You had better have an incredibly understanding domestic partner. They are watching you burn, not only cash but time, potential salary, hard earned saving and southern vacation opportunities. Think about the strain on your domestic relationship that not working will cause. Most of us can afford to miss a paycheck or two…can you afford to miss 10, 20, 100? Not only are you not getting a salary but you are likely spending money as well, a little bit here, a little bit there. This type of behavior is not something that most partners are comfortable dealing with, not for long anyway.

It is no coincidence that most of the people you meet in startups, the ones you see in the Google and Microsoft ads are young and single, they are the people that start ups hire. These people will work 100 hour weeks on the chance the startup will be successful. These people will take less salary because they have less to lose than the 35 year old with two kids and a mortgage.

Third point…

3. It takes a long time to get the revenue rolling in. It takes even longer before you are in a position to pay yourself. And you can always convince yourself that the first real revenue is just around the corner and that your first real paycheck is following soon after. But it rarely is, it is always much, much farther away that you think. And your investors and other companies you have to deal with know you are small and desperate and will take advantage of that fact to get you to do more work and wait longer for cash than normal companies. If you are one of the main founders you are likely to get paid last and be the first to be asked to defer salary (if you are even getting one). You and your founding partners had better be aligned on this, nothing creates tension in a startup faster than differing needs and attitudes about money.

Fourth point…

4. Pick your startup partners well. Nothing creates tension in your startup faster than differing attitudes…about anything. Remember you will be working close beside this person 8, 10, 12 hours each day, weekends, nights, traveling together, probably sharing hotel rooms (depending on your finances), you had better be aligned. Ask yourself, do I have the same goals, the same needs, the same work ethic as my business partner?

Ask yourself, do I need a partner?

I remember telling an associate in a startup (two in fact) that someone had to be king. Someone has to make the decisions and someone has to be responsible for the ultimate success or failure  of the venture. By all mean surround yourself with good people, ask their advice, actually take their advice but make a decision and stick with it. My feeling is that it is better to strike off in the wrong direction for a while, see where you end up, see what you discover than to sit, mired in indecision while your employees begin to question your leadership ability.

One of the great engineering tenets is that you learn more from failure than from success….and I would add…as long as you eventually succeed 😉


Here is my Top Ten list, for people starting companies.

Top Ten List – Things to Think About When Starting a Startup

1. Make sure you can live without a paycheck for at least a year…seriously 12 months…no income..trust me you will need the runway.

2. Pick you business partners well…you will be married to these people, you will see them more than your domestic partner and family…you better trust them with your new venture.

3. Figure out your idea…tell people about it…patent it if possible..but tell people…accept their input, their critisism…be rational…if this idea doesn’t work there will always be another. My patent lawyer (who is also an angel investor) told me that he will refuse to talk to you if you feel you can’t talk publicly about your idea. If your idea is so simple that telling him about it will put the entire venture into jeopardy then it probably isn’t that good or unique an idea. Tell people, judge their reactions, practice your pitch, you will need that pitch to raise awareness and raise money…you better be ready with the money shot when you get your 30 seconds in the elevator with Bill Gates.

4. Surround yourself with smart people, hire them, put them on an advisory board, have lunch with them, get drunk with them…know you are not going to do this on your own…there is just too much to think about.

5. Find an office where you can be together as a team. Everyone wants to start a company in their basement or in two or three basements, communicating using email and MSN but there is nothing to replace the interaction that comes from being face to face, talking in front of a white board over stale pizza. That is where the magic happens. You will be asked to consider off-shoring especially if you are taking any investment from VCs. Resist the urge…if you can’t sit beside your guys and help them solve issues you are asking for problems, you have lost control, it is not your baby anymore. Outsourcing will come, once you are bigger and successful…when you are little you need to be close to your idea, to nurture your idea and make it grow.

6. Treat your people well. There is no conversation I hate more than the “let see if we can sweat the guys” conversation I always have with founders. These people are making your dream happen, share the dream and it is not always about money, be creative and get them involved.

7. Options are worthless, do not try to use them as incentive programs. Unless you are a well funded, rapidly expanding company with actual sales in a growth market (biotech perhaps?) the probability that the options in your company will ever be worth anything are almost zero. Your employees know that and will laugh at the offer. If they don’t understand  the options are worthless then shame on you for making the offer.

8. Get your idea into the market…polish it only as much as necessary to make your customers want it. If it is a good idea it will take off, if it is a bad idea the polish will not fool them for long. Let the market decide if the idea is good and do it before you run out of money. If you give yourself a year it is always better to find out after three months whether the idea was good or not…give you time to adjust, to refine or to stop…if you polish the apple for the entire 12 months you only get one shot.

9. Market your idea. Too many technical people create something and then expect the world to come calling. If no one knows about your new gadget how will they know they need it. Why would you spend $1m building something and then spend $10K trying to tell people about it. Gaming companies sometimes spend more on marketing than on development. Marketing can make a bad idea successful, not marketing will never make a good idea successful. I am not suggesting you throw money away frivolously, but understand this thing is not going to sell itself. Hire a sales guy, hire a marketing gal, tell your friends, ask them to tell their friends, do a late night TV infomercial but get the word out. Be creative, you need to rise above the crowd, stand out from the herd.

10. Have fun. That what this is about people, a startup is not a job it is a calling. You are doing it to create something special…enjoy the ride.

(reposted on Associated Content)

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2 Comments on “Startups (are) for dummies

  1. Steve:
    Interesting blog. Wish I was as good an engineer as you are a writer. It occurs to me there may be a natural conversation (debate) we could have on-line that we might use to draw attention to our blogs. Unsure how to make that work, but am interested to try.

    Phil

  2. Steve, love the article. How long have you been writing like this? Where are you working these days? Hope you are well.

    Don Lachance

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