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daily articles for founders

Here are 10 quality posts from the Founder's Library:

Don't register your idea as a company  

Me, in January 2011:

I want to start this new year with an admonition, for all those who are still working at a day job, and thinking that at some point they may want to run their own business, but who haven't decided to do so yet.

Register a business, today.

Joel Gascoigne, today::

When to incorporate is one of those topics which comes up time and time again, and there is much conflicting advice out there. I'm lucky enough to have a number of different experiences and perspectives with this, and I now believe that by far the best option in almost all cases is to delay registering a company for as long as possible.

So who's right?

Actually, both of us are, because we're talking about different things.

I advise people who are hesitating on the cusp of starting their own business to register a business right away, because this will get them over one of the biggest mental hurdles and force them into the company owner mindset.

However, there's no forced congruency between this business, which is a step towards personal freedom, and "registering a business for an idea". The business that I propose you register today, if you haven't yet, is the a business that will largely represent you. It can be used for many purposes - including as an incubator or even long-term receptacle - for ideas, but that is not its sole purposes. Registering a business for what is merely an idea with no real validation is, as Joel correctly states, not a good thing.

However, that doesn't mean you should operate without the protection of a limited company. A great many successful entrepreneurs that I know have several businesses, including one that they use for their various consulting and speaking gigs. Just because an idea starts in one business doesn't mean it needs to remain there always. As the sole shareholder, you are allowed and able to transfer the assets to a new entity as and when it makes sense - e.g. when you need to take on shareholders.

So, do register a business, but register it for you - not for an idea.

You should probably send more email than you do  

Here's a very lengthy, opinionated and, I believe, absolutely correct piece by Patrick McKenzie admonishing startup-starting geeks to send more emails to their customers:

A long time ago, I used to be an anti-spam researcher. I was very, passionately committed to getting 95% less email in people's inboxes. This lead me to have an enormous psychological block against collecting and sending emails for my businesses. My perceptions were that:

  • users bucket email into "tolerably annoying" and "hated with passion unmatched by a thousand burning suns"
  • email marketing is universally kind of seedy
  • asking for email addresses would damage customer confidence
  • other methods of communication made email obsolete
  • ethical use of email is economically marginal for the business

These perceptions were catastrophically wrong. If you are currently where I was six years ago, let's have an intervention. You should start collecting emails from people interested in your topic of expertise and periodically dusting off their inboxes, too.

My quick calculations about engagement yielded a typical engagement rate of about 0.5% on Twitter, 5% on RSS, and close to 50% on email. One way to look at it is that each email subscriber is worth 100 Twitter followers in terms of engagement. So really, going by the subscriber count for swombat.com, I have the engagement equivalent of 63,000 Twitter followers right now... and it was a lot easier to achieve than getting 63,000 followers.

My not-so-carefully-controlled-tests showed that whether I display "You should follow me on twitter here" or "You should follow my RSS feed here" or "You should subscribe to my email list here" at the bottom of posts, I get the same action rate, give or take. This is why I took off the low-engagement Twitter follow message and replaced it with email.

In short, use email. It works, bitches.

How to start a startup  

As I mentioned earlier, I will be posting older articles for the Founder's Library.

This classic from Paul Graham is a must-read for startup founders, and very much deserves to be the first to receive the "Library treatment".

You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible. Most startups that fail do it because they fail at one of these. A startup that does all three will probably succeed.

Bearing in mind that Paul wrote this around the time when he started YCombinator, and so didn't have the vast amounts of experience watching over 200 startups grow, this is nevertheless an excellent pattern.

Starting with good people means to start with the right kind of obsessive, determined, smart people:

It means someone who takes their work a little too seriously; someone who does what they do so well that they pass right through professional and cross over into obsessive.

Building what customers want means getting something out and quickly iterating it based on customer feedback:

In a startup, your initial plans are almost certain to be wrong in some way, and your first priority should be to figure out where. The only way to do that is to try implementing them.

This, however, should come with the caveat that not all product problems are revealed by coding - nor is the quickest way to check off hypotheses always to build something. See this article, or most of the Lean Startup methodology.

Paul's final point is about spending as little as possible - both in terms of hiring, and in terms of other miscellaneous expenses like Aeron chairs. This fits in with the Lean Startup methodology which is popular today, although one update from Lean is that, once you reach profitable product/market fit, i.e. once you have built a process that takes in $1 at one end and turns it into $2 at the other end, then you should invest money into scaling that process to saturation.

Will you make it past being a founder?  

Great article by Marc Barros. From my own current experience, it is a hard transition:

Being a CEO is a very different role. Still the visionary and champion of culture, they are the ultimate leader. Yes a founder is a leader, but this type of leadership is not the same thing. What works as a founder to lead by example, has the opposite effect when you are the CEO. Leading not by doing, but by inspiring, enabling, and holding people accountable. Everyone has a slightly different definition, but I have found the following to be key areas of focus.

My most important and foremost principle over the last year is: delegate everything you possibly can. It's the only way to survive and create the time and space you need to think.

Marc's article is full of advice that resonates with me. Worth a read if you're lucky enough to be in this tricky situation!

How to handle lawyers threatening you  

Excellent article by someone who clearly has a fair bit of experience being threatened by lawyers. This is something that can happen to any business, particularly a successful business.

In short, Judd Weiss outlines three examples of his approach:

The more threatening the letter, the more references to precedent case numbers, the more terrifying the tone, the more they're covering up. The more they are compensating for lack of a legitimate case. Learn to smell a bluff.

When being bluffed, Judd's approach depends on the attorney's tone on the phone when he calls them. Reasonable, friendly sounding attorneys get dealt with reasonably. "Cold and technical" attorneys get served with:

The letter I received is without any merit whatsoever. You've given us 1 month to send your client $350,000 before you file a lawsuit. That's nice of you, but let's not drag this out and create movie suspense. Go ahead and file the suit tomorrow if that's in your client's best interest. But if I receive any more communication from your office beyond that this matter is dropped, I will sue your client and sue you personally for malicious prosecution according to CCP 128.7.

Finally, some attorneys are rude, nasty and condescending, and Judd deals with them by providing them with an answer they cannot seriously take back to their client without looking stupid.

Hacker News comments on the article are worth reading if you want to know more about this topic, as this approach will only work in the right context.

Paths and deterministic design  

Brad Hargraves:

In a path-driven business, each experience that a user — especially a first-time user — encounters is designed with the singular purpose of pushing a user to the next experience and perhaps collecting some information along the way. In the case of web businesses, each "experience" is a page. To generalize, a path is deterministic in nature; a subject's destination on any particular page has been determined by the page's design.

(...)

I'm not arguing against design. But good design is hard, and design outside of the constraints of a deterministic path is really freaking hard. And if you're a founder of an early-stage company, your job is already hard enough.

Silence  

From my father's blog on wisdom:

If you have a gift with words, learn to keep your mouth shut; when you speak, punctuate with pause; and when you have nothing to say, say nothing.

(...)

Your silence passes many messages; one is that you are somebody, not nobody, a person able to face a crowd and to wait. This is an almost biological power of the big secure animal looking at harmless ones. People understand or better said they feel. After this, you have a better chance to be listened to.

Silence has tremendous applications in the business world too, of course.

For me, the "aha" moment about silence came when I was working on my first startup, while still working full time as a consultant in Accenture. I was sleeping about 4 hours a night for 9 months, and so I was constantly tired. At the time I was managing a small team of people who often did not get along. So, every once in a while, I would have to set up meetings with me and two other people to resolve their conflict and keep the project moving forward.

Because I was so tired, I spent most of my time in the meetings quiet, minimising even physical movement. I would sit and listen and let the meeting go its way until I came to a moment where I felt that if I did not say something - the right thing - just at that moment, with just the right body language to support it, things would go wrong sooner or later and I would have to pay with even more tiresome activity.

I wasn't scared of being "found out" for doing the bare minimum in meetings. I was starting my first business and I believed I would be out of the corporate world soon (and I was). But I noticed something very strange. Because I talked so rarely, every time I spoke, people stopped talking and took the time to listen to me. By doing much, much less, I had somehow given the little that I did do a lot more weight.

Since then, I've used silence in many other contexts. It can be a very useful tool for sales, for example: when you're trying to close a sale, at one point you need to state your pitch, with the price, and then just shut up. If you keep talking, you will only distract the customer from evaluating the pitch and coming to a decision.

In person-to-person conversations, few people can stand a prolonged silence, particularly when it follows a certain kind of statement. "I don't know what I can do to solve X," followed by silence, will often pull suggestions for solving X out of someone who would not have volunteered them for "how should I solve X?"

Learn to use silence. It is a powerful tool in many contexts.

Dilution infographic  

I'm not generally a big fan of infographics. I basically consider them the "lolcats of dataporn", if that makes sense - cutesy pictures that appeal to people who are obsessed with the act of acquiring more information, but never really figure out ways to use it in any way because they're too busy acquiring the next piece of dataporn.

However, sometimes, an infographic can be a great way to explain an idea visually. That's the case for this one, by Jess, reposted by Mark Suster, which conveys, both visually and with numbers, how share dilutions work in practice.

Enjoy, but don't let me catch you watching porn again!

37Signals' alternative option  

Not all companies that you'd think of as tech startups needs to distribute shares or options to their employees:

The complexity was both psychological (company dynamics) and economic (options/equity doesn't really mesh well with an LLC corporate structure). And since we have no intention of selling 37signals or going public - the two scenarios where options/equity really make sense - the complexity became too hard to justify.

It's easy to come up with elaborate alternate schemes to avoid giving equity to employees, so it's good to see that 37Signals came up with a relatively straightforward scheme:

Here's what we came up with in the event of a sale or IPO:

  • At least 5% of the ultimate sale price (or, in the case of an IPO, the fair market value of the capital stock) would be set aside for an employee bonus pool.
  • Each current employee will be credited with one unit for every full year they've worked at 37signals, starting after the first full year. The maximum amount of units one person could earn would be five units. > - So if you worked at 37signals for two years you'd get two units. Three-and-a-half years, three units. Four years, four units. Five years, five units. Seven years, five units. Etc.
  • We would divide the total employee bonus pool dollar amount by the total number of units held by all employees. This would determine the unit value.
  • Each person would receive the unit value multiplied by their units.

The only point I'll add is that if you decide that your business is not one which grants equity to employees (which is absolutely fine), you should be consistent. I know of at least one fairly high-profile business which takes the "we don't give employees shares/options" but then do give them out in secret to some key employees. That's just wrong.

Leading indicators of engaged users  

Very interesting. Richard Price reports on the Growth Hackers conference:

(...) it's important for the operational metric to be concrete, and also relatively early in the funnel of the user's experience of the site. As the funnel continues, drop-off becomes high, and you want to find a leading indicator as close as possible to the top of the funnel that you can work on to minimize the drop-off.

Richard also gives some good examples of leading indicators from well-known examples. Figuring out those leading indicators can be very difficult, so this is useful too:

[Facebook] looked at cohorts of users that became engaged, and cohorts of users that did not become engaged, and the pattern that emerged was that the engaged cohorts had hit at least 7 friends within 10 days of signing up.

So even a company the scale of Facebook had to use good old eyeballing to figure out what was going on!

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