swombat.com

daily articles for founders

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

Startup or big company after university?  

Jean Hsu discusses the pros and cons of both choices. As she points out:

Despite articles that claim otherwise, I don't think either one is the right choice for everyone.

If you're facing this choice, read on for her informed perspective on the topic. Then make up your mind based on what you want out of the next few years of your life, not based on what other people are telling you, with no context, that you must do.

Understanding your competitors  

In GrantTree, I've lost count of the number of times when, upon being asked about competitors, the client declares that "we don't have any competitors, what we do is unique".

Unfortunately, this mindset is wrong. Here's Des Traynor's take on it:

McDonalds and Weight Watchers are selling wildly different products, but they're competing for the same customers. This is what we call indirect competition. Note that this is different to competing on outcomes. Video Conferencing & Business class flights compete on outcomes. In that case, they're both hired for the same job (business meetings).

Spot on. The rest of the article explains how to make use of this insight in practice, with a real-life example. Read it now.

A system for following up after conferences  

Good follow-up discipline is an essential business skill. Relationships are crucial to almost every business out there, and if you don't follow up effectively, you miss out on a lot of potentially extremely helpful relationships.

We've covered the topic before, but it's good to get different points of view and approaches.

Alex Moore proposes a systematic approach to following up:

  1. Have a canned message for the conference.
  2. Sort the business cards you collected into VIP, Useful, Marginal, and Unhelpful.
  3. Follow up on the VIPs first, heavily customising the canned message to personalise it more and include something that you want to ask them. Set yourself a reminder to follow up again 4 days later.
  4. Go through the Useful cards, and do more or less the same thing, but without always asking for something explicit.
  5. If you have time, go through the Marginal cards.
  6. Throw out the Unhelpful cards. Decline invitations to have coffee (harsh, but helpful if you're very busy).
  7. After 4 days, follow up again on the VIPs who didn't get back to you.

Alex also proposes some tools, like Boomerang (Outlook-only) or CardMunch to help with these tasks.

Build apps not businesses  

Sahil Lavingia takes a contrarian view to the standard focus on building something that's capable of making money. Instead, he suggests, focus on building lots of fun weekend projects, and see which one sticks.

A common [negative feedback] is that you should be building a business. Worrying about money. Changing the world. David Heinemeier Hansson of 37Signals is known for lambasting businesses that seem oblivious to the concept of profitability. I don't really agree with him. I think that you should spend time doing fun little projects. Many fun little projects. Recognize that most of them will die, but that one or two may do well.

I don't quite disagree with this point. These days, technology enables us to build projects so cheaply that "throw many things onto the wall and see what sticks" is a good selection technique. However, there's no reason to ignore the financial possibilities before deciding what to throw on the wall. If you have two ideas you feel like working on, one of which has a monetisation path, and the other one of which does not, then try the first one first, surely.

Entrepreneurship is the safest career

Entrepreneurs are generally perceived as insane risk-takers. One common metaphor for creating a startup is jumping out of a plane (the safe, corporate or academic world) without a parachute, and building some kind of viable flying device on the way down. Entrepreneurs often use this vivid image, because, well, it sure sounds pretty cool and brave and all that. It paints entrepreneurs as an amazing-sounding combination of Jack Bauer, Chuck Norris and MacGyver, insanely resourceful, persevering, brave, and so on.

There are several big and damaging fallacies in this view, however.

First and foremost, is the idea that if you fail to build a working startup in time, you will die a horrible and violent death. That's obviously not the literal meaning of this metaphor, but the images we use to interpret the world around us certainly influence our thinking, and picturing entrepreneurship as a head-first dive towards a violent death is a powerful subconscious image.

Another misleading element is the implicit perception that you only have one shot at it, so you better make it. "Startups are sink or swim!" - if you don't stay afloat, you're dead.

A third fallacy is proposing that the outcome is binary. Either you build the plane, or you're dead.

A fourth fallacy is the idea that starting a business is an incredibly scary ride, reserved for insane thrill-seekers. If you're not a Jack Bauer type of character, perhaps entrepreneurship is not for you?

But perhaps the most important fallacy in this image is the clear message that entrepreneurship is very risky.

Let's deconstruct these a bit and put this image to rest (or fix it, at least).

1. A horrible and violent death

Is startup failure comparable to a horrible and violent death in any way?

If you quit your corporate job and try to build a startup, and it fails utterly, you may well have thrown your savings into it. That's unpleasant, but it's hardly a violent death. You may or may not find that your previous career will not welcome you back, so that may mean a career change. Whether it does or not, this is once again not a tragic ending, just a change of direction.

If you played your cards very unwisely, and maximised risk instead of minimising it, you could find yourself in a very difficult financial situation (e.g. perhaps you've arranged things so that not only is your startup broke, but you are personally bankrupt and lose your house), but that can only be blamed on yourself, not on the fact that you "did a startup". It's a relatively easy outcome to protect against if you realise that failure is a likely possibility along your path, and don't put all your eggs in the first basket that comes along.

In any case, unless you took unreasonable risks while pursuing your startup, dealing with its failure will be an unpleasant affair, but very far from an "end". It's more like a step along the journey.

2. You only have one shot at it

This leads us into the second point, the idea that you have just one shot at entrepreneurship.

As I've said before, Entrepreneurship is a career. Bravado images like the one we're dissecting, and the high-octane "build a billion dollar company in a couple of years" Silicon Valley culture try to paint it differently, but the reality is that most successful entrepreneurs are in it for the long run, and stay in this game for all or most of their life.

Obviously, if you've built Facebook, you may not feel like starting another startup again after that. But that's valid for just a handful of entrepreneurs in the world, and there are many counter)-examples, even some big ones with bigger-than-Facebook-scale-successes behind them. All of them started multiple businesses, some more successful than others. Entrepreneurship is addictive, and even having a multi-billion dollar success under your belt won't stop you from yearning to try to do it again.

Bill Gates probably won't start another business. Mark Zuckerberg may or may not (only the future can tell), but most likely would if he was somehow ejected out of Facebook.

Entrepreneurship is a career. So long as you don't hit yourself in the face with the bat, you can keep taking swing after swing after swing. Painting entrepreneurship as a one-shot thing only serves the agenda of those trying to discourage you from starting your own company and those who want you to risk everything for the sake of a single business.

3. The outcome is binary

Chances are, you will not build the next Facebook and become a billionaire. Chances are, you will not end up on the street begging for food. Even if we look at the financial dimension alone (and we shouldn't, as there are many other dimensions to the way people measure their success in life) , the bulk of outcomes will be distributed all over the interval between those two extremes. Maybe you'll come out of your startup with a bit less money or a bit more. Maybe you'll increase your level of wealth substantially, but not enough to "retire at 30" (who wants to do that anyway?), or maybe you will make "fuck you money". Maybe you'll build a business that can sustain an ok lifestyle for yourself but isn't up to your level of ambition.

Which outcome you get depends on many factors, but what should be pretty obvious is that it's never an all-or-nothing deal.

There's one commonly cited exception to this, which comes into play if you raise money from a VC. Those deals typically come with serious strings attached, making it difficult for you to exit the business or run it as a lifestyle business. This can turn what would otherwise be a solid $10m business (no small achievement!) into what looks like a near-$0 outcome for the founder. However, no one will force you to restrict your options by entering into such deals, and even in this worst-case outcome, the founder typically ends up, at the very least, no worse off than he or she started (better off, if you count the awesome experience of having run a startup as a plus). However, this does make the outcome seem more binary.

4. Starting a business is incredibly scary

Are you kidding me? Starting a new business is incredibly exciting!

Starting a business is hard, no doubt, and there are times when you feel like there's no way it can work, like it's all about to come crashing down, and so on. But there are also times when you feel on top of the world. Starting a startup can be pretty tough on your emotions at time, and emotionally unstable people should probably stay away, but we shouldn't ignore all the incredible benefits that come with it.

While creating a business you are:

  • learning extremely useful practical skills that will serve you throughout your career (in or out of entrepreneurship);
  • in charge of your lifestyle in a way that's completely impossible in a large corporation;
  • deciding things for yourself, able to structure things in the way that you think is best in terms of your own priorities;
  • free of corporate politics (well, until you are lucky enough to be in a position to create that headache for yourself by hiring lots of people);
  • doing a wide variety of things (if you don't enjoy that, you probably shouldn't be an entrepreneur);
  • doing something valuable to the world around you (if they're paying you for it, it's probably worth something to others!);
  • etc...

Yes, entrepreneurship is a bit scary. But it's hardly the thrill-seeking death-ride that the "jump out of a plane" image puts across.

5. Entrepreneurship is very risky

Finally, this is perhaps the most pernicious implication of the "plane" metaphor, one that sometimes makes me think that the image was concocted by people who did not want others to become entrepreneurs.

People often bandy about failure statistics for startups. Yes, a lot of companies fail (for a given definition of failure), but that doesn't say much about what happens to their founders. My first two companies failed. My third one is succeeding (if it hadn't, I'd be on my fourth, fifth, sixth, etc). Am I a successful entrepreneur? I think so, and yet statistics would say that, oh horror, 2/3 of my companies have failed. And that's not even counting the handful of startup-like projects that I did which never even got to the stage of being incorporated as companies.

Being a startup is risky, but nobody is a startup. As an entrepreneur, you create and run a startup. Your career consists of doing this, repeatedly, until you decide you want to do something else. This is much like any other career, and so let's compare it fairly. Rather than comparing "a startup" to "a job", let's compare the entrepreneurship career to the typical corporate career, in terms of both risk (downside) and potential reward (upside).

Job security

As an entrepreneur, the only person who can fire you is yourself. Moreover, you have all the information you need to see it coming for a long, long way, and you have the control you need to avoid it, if it is avoidable. Finally, your job security is largely linked to your own abilities. You can't be fired from your startup because some other company had a bad quarterly report (unless you actively made yourself dependent on that other company exclusively).

Working in the supposedly safe corporate environment, you can be fired at a moment's notice, based on wide-ranging decisions like "Let's fire 2000 people to make the profit look better next quarter", or based on the poor performance of another department in your company, or any other number of completely opaque events that you have no information about. Job security in the corporate environment is an illusion. It works most of the time, but it's fake.

Entrepreneurship: 1. Corporate life: 0.

Financial upside

As an entrepreneur, if you generate a million dollars of profit, the money is yours (well, minus taxes, but that's another matter). If you generate ten million dollars, it's once again yours to do with as you see fit. If you generate a billion dollars of profit, it's yours. The upside is always all yours. Even better! Once you're employing other people, their financial upside is also yours. If they close a million dollar deal for your company, the million dollars is yours. You may (and should, if you want them to do it again) choose to share that with them, but fundamentally it's yours, and you'll often get a big share of it.

There are corporate jobs that pay significant variable bonuses. Salespeople, in particular, and highly specialised financial services workers (e.g. traders), can earn mouth-watering bonuses based on their year-to-year performance. However, those are certainly the exception. In most jobs, your financial upside is severely capped - to zero. You might get a pay raise if you do very well. That's about it. Even most jobs with performance bonuses typically have a cap on them. Generate a million dollars of business for the big corporate bank you work for, and you might get a few tens of thousands of pounds of bonus, in the absolute best case scenario. Typical sales commission might be about 10%. But in most cases, it won't even be percentage based. Did you create a million dollars of value? Well done, you've earned your entire $10k bonus allocation for the year.

Entrepreneurship: 2. Corporate life: 0.

Career security

What happens if your entire skill set becomes obsolete?

In the corporate world, especially nowadays, this can easily happen. As automation and outsourcing extend their octopus-like tentacles everywhere, tens of millions of people will find that no one needs their skills anymore. The smart ones will have shifted into new career paths before that happens, but many will find themselves unemployed, and desperately trying to retrain into a new career, starting from zero again, and so on. It used to be that once you'd learnt a trade, you could apply it for the rest of your life. The modern corporate worker can expect to change careers at least two or three times in their life, if not more.

This could in theory happen to entrepreneurs too. However, because of the way entrepreneurship works, it won't. See, the main activity of entrepreneurs is to discover and exploit business opportunities. As long as there are business opportunities, the career path of the entrepreneur goes on.

There are some regimes where the enterprising spirit is discouraged or even illegal. There may come a time when money is irrelevant and business opportunities are an obsolete concept. However, in such a situation, pretty much all "career paths" are obsolete.

Entrepreneurship: 3. Corporate life: 0.

In short, the entrepreneur career path is considerably safer and has better upsides than most corporate career paths.

In conclusion

The image of the entrepreneur as an insane risk-taker who is willing to leap out of a plane and risk death or destruction to launch a business needs to be put to rest.

Instead, it should be replaced by the reality: (successful) entrepreneurs are sane, pragmatic, risk-averse and cautious. They plan ahead as much as possible, come up with ways to mitigate the worst risks and make contingencies for failure of their business ventures. They are level-headed, in it for the long term, enjoying the ride as well as the destination, and determined to keep trying different businesses until they succeed (and even after they succeed).

A much better analogue for the entrepreneur is the applied scientist trying to discover new physical principles through repeated, persistent, careful experimentation. It may not seem as sexy as jumping off a plane, but perhaps it's time to stop pretending that entrepreneurship is only for the insane. The world could use more successful entrepreneurs.


Asking for a credit card upfront  

Negative Option billing refers to a business practice where a merchant provides a free trial or sample of goods/services, requires a credit card upon sign up and then bills the customer in the future unless they proactively cancel with the merchant.

This is a very common technique to increase conversion. You have to make the sale when the (potential) customer is most excited about the product, and in many cases, that's right at the point where they're signing up. They may still be excited a month later, but initial dreamy-eyed enthusiasm always gives way to the reality that no product is quite perfect.

Negative option billing can quickly turn into a dark pattern if you push it too far, and this dark pattern is very much frowned upon by card providers, because it leads to more chargebacks. To avoid the extra chargebacks, follow these guidelines from the article:

  • Don't create a false expectation that the product is free.
  • Communicate up-front when the first charge will come, and send a reminder 5 days before.
  • Don't require the card information up-front.

The last point is dubious (it will cost you a lot of sales), but the other two should be clear.

Why it's hard to find technical cofounders  

Much of the reason why it's insanely hard to find a really good technical cofounder is that the best ones really don't need you. Or at least they don't think they need you.

(...)

They are not the code monkey. You are the biz monkey.

Another point: you probably want some assurance (in the form of past achievements) that your technical cofounder will be able to deliver the technology. Technically gifted people will want the same assurance with respect to your business skills. "I sold my previous business for $5m after 2 years" will get even the most independent geek's attention.

Andrew Chen provides a number of other tips for non-technical founders, such as, for example, building a less technological business first to prove your mettle, and understanding and communicating what you will bring to the table.

Who owns the rights to the stuff you do in your spare time?  

An interesting discussion over at the OnStartups stack-exchange:

I was interviewed by a lady from Zynga and she told me that Zynga doesn't allow developers to have side projects. Is this true for companies in general, or just a minority that Zynga is a part of? Is this sort of restriction legally enforceable? I'm in California, for what it's worth.

The HN discussion is interesting, particularly this brief comment thread by startup lawyer George Grellas. If you are working for one company while starting up on the side, this is critical information.

Selling your company doesn't make you happy  

Ryan Carson:

Every entrepreneur wants the following things and selling your company doesn't change them. You want to be …

  1. Solving a problem that makes the world better
  2. Working with people you like and respect
  3. Free to be creative
  4. Hitting milestones and making progress
  5. Challenged and learning

All those things can be achieved within the context of running your own business. If those are not the priorities that you want to achieve, though, perhaps you should not pick a career in entrepreneurship!

Other equally valid priorities:

  • Raise a numerous family
  • Live a peaceful and happy life
  • Be an artist
  • Take over (some part of) the world! - through money, power, or other means
  • Push the boundaries of human knowledge
  • Teach people something of value

And so on... While some of those are achievable within the context of entrepreneurship, if the goals Ryan mentions are not high on your priority list, you may wish to consider doing something else!

Enjoy the adventure that you're currently experiencing and realize the daily highs and lows are what actually make your life meaningful.

Of course, as one of the commenters puts it:

I always figured that if you sell one business then at least a part of that would be funding the next one. A significant part of starting a business should be because you love what you're working on, when you sell up it'd get boring very quickly without a large project to work on and nurture.

Focus and myopia  

Here's a really excellent article by Dharmesh Shah that deconstructs the glib advice that "focus is key":

So, here's my point: Talking about focus is useless unless you consider the level of abstraction you're talking about. If you squint just right, any activity you're looking at seems de-focused. In the iPod example above, I could argue that Apple showed considerable restraint and focus by not going out and building a Hollywood production studio and creating content. Or, I could argue the flip-side and say they lost focus from their core.

I agree that focus is about saying no. But that's not all of it. By saying no repeatedly, what you're buying yourself is the ability to say yes to something much, much better. You're not freeing up resources just to hoard them away. You're freeing them up so you can apply them better — either by saying "yes" to something new or doubling-down on bets you've already made. So, the benefit of saying no to a bunch of wrong things is only realized when you find a way to say yes to the right thing. Important note: I'm primarily talking here about high-level company strategy. If we were talking about focus as it applies to product management, saying "no" to new features has intrinsic value by just keeping things simple.

Advice is always highly contextual, and most people don't take the time to figure out whether their context is right for the advice they're looking to apply. This type of article is very useful in that it takes an apparent truism and shows how variable it is.

After all, the opposite of every profound truth is another profound truth (Niels Bohr), so unless you know how to apply profound truths usefully, they can hurt you as much as help you.

Read the whole article here.

more