I'm sitting in Marc Hedlund's tutorial, Coder to Co-Founder: Entrepreneuring for Geeks. Looking him up on the Web, I found, what else, a post he'd done about twitter about how Twitter is wall for the Web (and some other things).
Something from Nothing: Marc makes the point that being employee number one for a company is easier than being the founder because being employee number one implies something's already there--a name, an idea, money, and so on. You should work on the idea that won't leave you alone.
It's Good to Be King: It's fantastic to have an idea, get people to work on it, and see if it works. It's enormously satisfying to do that. Everyday there is a new problem, something you haven't done before, something new to learn. As founder, you get to do everything and that's fun.
One of the most important skills is to be able to listen to others tell you what's wrong with your idea, solicit feedback, and learn. If you're more excited than you're afraid then it's time to start. It's rational to be afraid, but you get over that with your excitement for an idea.
Better ideas: Your ideas will get better as you understand business better. Engineers like to think all ideas are about engineering, but there are more things you need to know. He suggests following a sales guy around. Sit in on a sales call and listen to customers. I think that's excellent advice--but don't limit it to sales. I remember being tutored in business finance by a very patient and smart guy, Chris Heim, when I was a new CTO. That was very helpful to me.
Losing sucks: Having start-ups on your resume is tough because people see it and think you'll leave the next time you have an idea. Closing down a business is hard, but you learn a lot. Have some cash in the bank--you won't want to go right out and get a job once you close your company down. Having money in the bank is flexibility.
Good reasons: One good reason to start a company is you get to create a company you'd like to work at. Boy is that true! There is nothing better than being about to make decisions that make a company a good place to be.
Bad reasons: Don't start a business to be rich or famous. There are better, easier ways. Don't start your business because you want total control. This doesn't work. The very ideas of a "company" is that you get other people to help you and you have to delegate authority to them.
The idea: The idea will change over time. What matter is identifying the demand. Talking to people will help identify the demand and help you refine the idea. Early on, find out what matters to people, rather than designing the Web site.
Build what you know: Mark recently started wesabe, an online money management tool. He knew about the idea because he knew plenty of people, including himself, who needed help managing money--and knew what didn't work.
Give people what they need: Note that this is different than what they say they need. Don't listen as much to needs as to problems. Mark interviewed about 1500 people about managing money as he got going on Wesabe.
Keeping secrets from the market: If you keep your secrets from the market, it will keep it's secrets from you. Be inclined to be open about your idea. This doesn't inoculate you from people stealing your ideas, but the benefits outweigh the downside. You certainly need to have secrets, but don't keep secrets in areas you need feedback from people.
Prudence becomes procrastination: You can be too careful.
Momentum builds on itself: Building UI prototypes, demos, and so on will help people connect to your idea and become enthusiastic about it. Put your idea on paper, build a pitch deck, write a one-page summary, code a prototype, etc.
Partners: it's enormously helpful to have a partner. Co-founders and others can give you a big push. When you're all on your own either you do something or nothing happens. When there's more than one, you can feed off each other. You have a commitment to someone else.
Timing: In down times, money is scarce. In good times, employees are scarce. Any time is a good time to start a great company. It's more important to have a great idea than to have great timing. Take advantage of whatever the landscape is when you start.
Competition: Entrepreneurs are unduly scared off by competition. All that matters is if you are better than the others.
What to worry about: Is there a need? Are you building for yourself?
Don't worry: about not having help, advice, etc. Don't worry about raising money.
Explain yourself: tell your idea to the taxi driver and other people you run into. Perfect your elevator pitch and you'll perfect your idea. He tells the story of the founder of del.icio.us who found out from talking to people that most people don't call bookmarks "bookmarks" but "favorites" because of IE's influence.
Critique a friend: Get someone who knows your idea try to pitch someone else. You'll learn a lot about your idea.
People: talk to people--not just your friends. You don't have to be comprehensive. Get out of your normal group of people. Don't get so much advice that you talk yourself out of your idea.
Co-founders: Being the co-founder in a business is a way to ruin a friendship. You'd think just the opposite. I have seen this several times--it's easy to get into disagreements you can't work out and become bitter.
Three is fine, two divine: This is the same rule as for airplane partnerships. :-) One co-founder is ideal, two is OK, more than that is unworkable.
Employees: The first few hires set the tone for the whole company. Boy is that true. Don't give people full time job offers until you're sure. Hire them as contractors and then give them a full time offer if it works out. This is some very good advice.
Joiners: Lots of people will know about you and not be willing to make the leap early on. Find a way to keep them interested. It's not a bad thing that as you get more successful, people want to get involved.
Veterans: Startup veterans are a great source of help since they love the culture.
People you like: Hire people you like. Work with people you like. Find smart, talented people and hang out with them.
Share a passion: Find people who believe. If you've got to convince them, they don't have the vision of what you're doing. Find people who are as passionate as you are.
Funding: Two paths: bootstrapping or investments. Bootstrapping is when you don't give up equity and build the company on your own. This is usually a pre-requisite for getting investments, especially for first timers without a track record. How do you do it?
- Moonlighting - recommended if you're single
- Consulting - How many slots do you need to support yourself? Fill them all and then as you get customers for your product, fill slots with your own product work. Tough because clients have to take priority.
- Loans and grants - Banks are risk averse, but some companies do start this way. Find a grant that you can do and work on it and your idea.
- Yourself and family
Bootstrapping has the advantage of letting the company grow at it's own rate. Bootstrapping is the way to go if you aren't after the model that investing requires: liquidity event in 4-5 years. Bootstrapping is hard. You're worried about money all the time. Funded competitors may be able to move more quickly. Still, do it unless you absolutely can't.
Investments: Types: angel ($25-500K), venture capital ($100k-5m), funding round (selling private shares).
Angels are the least onerous. They can often be big supporters. On the other hand, they're getting more sophisticated and requiring more terms up front.
VC's want control and that can be tough. You could be fired from your own company.
For a funding round, you have to agree on an evaluation, pre-money and post-money, and a share price. Marc points to this article from feld.com for more information on how the math works.
There is a very simple trick to getting VC money: don't need the money. If you don't need them, it drives them crazy and they will call you and ask for meetings. If you're needy, it implies that you're desperate.
Metrics: 10 face-to-face pitches yields 1 term sheet. One term sheet yields on round of financing. From pitch to term sheet on average is two months. Signing the term sheet to "going to contract" (and getting money) is one month. The total time is 4- 12 months.
What you need: 10-15 slide Powerpoint presentation (pitch deck), executive summary (2-3 pages), and an introduction to a VC.
The best pitches are plainspoken and entertaining. Never let on that you're keeping a secret.
Marc shifts into strategy:
Identifying demand: Marc's company competes with Quicken (and lots of other online apps), so what problem exists that Quicken doesn't meet? Marc noticed that Quicken wasn't a high priority product from their public filings. This led him to believe that there might be unmet demand.
Room to grow: What has changed that allows your start up to take a position that didn't exist before? For Marc, what changed was OFX, a standard for getting data from banks, started to get a real uptake in adoption by banks.
Market shift: Another place for start ups is a place where the market has changed. Virtual workers and the Internet are two examples that Marc relates.
Solve a problem: Some successful companies can simple mitigate a problem, but most need to solve it.
Fly along the bottom: be the cheapest solution in your segment. Being the middle solution puts you in a position where you're getting feature pressure from the top and price pressure from below. Not a comfortable position. Be on the top or the bottom, but not in between. For Web start-ups, the bottom's a great place to be.
Paying equity: The good thing about paying with equity is that you don't have to raise money. The bad part is that people who work for equity have to get money from somewhere, so they get distracted. Equity is the most expensive thing you will ever pay with, but it might be all you have.
Launch an idea: The moment something's working, get it out and let people bang on it. This is a great way to get feedback. Marc didn't do this with Wesabe, because he wanted to get certain features (community oriented) working to differentiate Wesabe from other "Quicken on the Web" products. You can only make a first impression once.
Publicity: Don't buy Google Ad words, fly people around, etc. Get a good PR person--they can get people writing about you and that's a huge payoff.
Support pipeline: Marc answers 80% of the customer support emails that come into Wesabe. For a startup, customers who write to support are the ones who care about you and will give you good feedback. Customers who write for support are the ones who are already committed. Pay attention to them.
Viral: How do your current customers lead to new customers? How can your product sell itself?
Kibo: get a name that isn't already a popular word on Google. You'll be able to easily find what people are saying about you and respond, reinforce ideas, etc. He mentions that if you mention Wesabe on your blog, Marc or his partner will see it (Hi Marc!)
Transparency: Wesabe's CEO's cell phone number is on the homepage. Talk about what works, what doesn't, what you're doing and so on. People like authentic stories. When you're honest about things that go wrong as well as when they go right, people will respond.
Case studies: Marc is finishing up with some case studies of two businesses he's worked on. The first was an idea for helping people get better customer service with tools, collective bargaining, etc. He works through the good and bad points of the idea. He ultimately decided not to pursue this idea because of the negatives.
The second case study is his current gig: Wesabe. Money is the #1 stress in most people lives and the idea fits well with the Web. The biggest resistance to the idea is that people are private about their financial information. Banks are complicated and it's easy to turn into a company doesn't really solve the problems. Ultimately, Marc decided to pursue this idea.
Learning more Here are some resources that Marc recommends:
- The Art of the Start Marc says that he doesn't agree with everything Guy says in the book and it's very VC centric. Still good information.
- Founders at Work - Good balanced view of founding stories.
- Getting Real - There's dogma here, so be careful. The discussions this starts are more useful, perhaps, than the actual content.
- The Ten-Day MBA - You don't need an MBA to start a business, but you need some information. This is very true. I went to a three week executive course at Univ. of Michigan in 2001 and it was very useful.
- The Product Marketing Handbook for Software - more for desktop software than the Web, but useful anyway.
- What the Numbers Say - understand the math you need for business (and other things)