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daily articles for founders

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

Selling dirt takes skill  

Elli Kanal has some respect for a man who, without any advanced degree, can get by selling dirt from the Holy Land to religious pilgrims. Although he makes a few interesting points, I can't help but feel that this misses the mark:

My skillset: (1) I can program in five languages. (2) I'm able to interpret neural signals and tell you what you're thinking before you even know it yourself. (3) I know how to create a machine learning program that learns from it's past mistakes. (4-inf) All the other stuff I've learned along the way.

This guy's skillset: (1) Selling dirt.

In the words of the wise master Yoda, "this is why you fail." Selling dirt successfully, making a business out of it, takes a lot more skills than it seems on the surface. Sure, you can summarise it all as "selling dirt" (and even then, you're only looking at the skills that are directly used to make money), but then you could also summarise Eli's skills as: (1) doing computer stuff; and, in fact, this is how many people who know nothing about computers summarise the skills of the average technical cofounder.

The first step to learning to be a successful businessman is to realise that business creation is a technical field that must be learned and figured out just like any other. And, unlike engineering, which is taught to relatively high levels at university, there is no course that will really help you pick it up (MBAs are widely recognised as being far from effective at training entrepreneurs).

It's a common misconception of technical founders that there's nothing to "all that business stuff". But that view is as uninformed as the opposing one that "all you need is to hire a coder to implement your vision".

Don't shut up  

Top Sequoia partner advises startup founders to shut up:

Douglas Leone of Sequoia Partners just finished on stage at TechCrunch Disrupt, and he had some interesting advice for young founders: stop talking.

(...) a couple of young smart people can create a beta Web site over a weekend and iterate from there. A lot of younger founders "don't know what they don't know," and that creates the temptation to talk too much.

Now, to be fair, I wasn't there at Douglas Leone's presentation, so I don't know how much Business Insider is taking things out of context - and to be fair, I am myself cherry-picking a few key quotes from the article, although I feel they illustrate the point being made fairly well. It's entirely possible that Douglas's advice was nuanced, contextual, and overall adds up to the same point I'll make below.

Here it is: as a new founder, what's going to kill you is not competition, it's yourself. You've got a thousand opportunities to make critical, fatal mistakes, and you don't even know what those are. So, as a new founder, the last thing you should do is shut up. Go out, talk to people, get feedback on your idea, your vision, your plans, your software, and so on. First mover advantage is largely a myth (and you're probably not the first mover anyway - and if you are, you might want to consider building a different product, one where you don't have to create a market as you go along, because that's hard).

Sure, there's a vanishingly small chance that someone will "steal your idea" or "copy your business over the weekend", but if that does happen, chances are it's going to happen anyway because your business is indefensible or you suck at execution. There's a 0.01% chance someone will do this - on the other hand, there's a 90+% chance that you'll screw up your business yourself. And the only way to decrease that 90% is to talk to people, get advice, mentorship, and so on.

So, definitely do not shut up when you're a new founder.

Is there a context where you should shut up? Of course. Wisdom is always contextual, and so is this advice. What Douglas may have been pointing towards (but this was lost in the Business Insider article) is that if your business is taking off, winning lots of clients, growing, and doing great - then you should "shut up". You should still talk with trusted advisors - ideally investors or people who are officially on your board of advisors, or close friends and mentors - but you should not go out of your way to give presentations at conferences and other events advertising that you're doing great and how you did it. That can only spawn competitors and eventually make your job harder.

So, if you're in the enviable situation of having a rapidly growing business, shut up. Everyone else should talk, talk, talk!

B2B SaaS growth techniques  

Solid article by Lars Lofgren about five key techniques to get more users for a B2B SaaS app. The five techniques listed are:

  1. Integrations with other products that target businesses
  2. Work emails: leveraging the fact that many of your users have colleagues
  3. Embeds: enabling businesses to embed their content into their site
  4. Powered by: tagging your product when it's being used
  5. Free stuff: giving away something valuable (e.g. a thorough guide) to encourage referrals

Each technique is described with examples and best practices. Even an experienced B2B entrepreneur will probably learn a thing or two from reading this article.

Investor tricks to mess with valuations  

Here are a couple of articles (1, 2) detailing some techniques used by investors to tweak a valuation in their favour. The site is a little dubious - basically a collection of articles designed to sell you an eBook about private equity, but the articles are interesting on their own merit.

The tricks being exposed seem devious and misleading, and they are hopefully more representative of private equity than of technology venture capitalists. Personally, I'm not much into the VC money game, but if I was to consider taking on investors and I noticed something like that going on, that'd be the end of the discussion with that particular investor. This is probably a good reason to build a business that doesn't strictly need outside investment: so you can tell any investor who tries to pull a fast one to fuck off.

In any case, if you do intend to raise money from professional investors, make sure you get a good lawyer who can spot these things and warn you that you're about to get shafted.

Here, then, are the devious tricks:

  1. Vendor financing, aka giving you the money in tranches; for example, $7m now, $7m in 5 years means that the actual value of the deal is only $9.8m based on a 20% discount rate);
  2. Contingent earn-outs, aka the same, but even worse, because the second tranche is uncertain;
  3. *Company-paid earn-outs, aka the same, but the wording says that "the company" will pay the extra money, which means the current shareholders (i.e. you) will need to pony up some of the cash yourself;
  4. Equity clawbacks and ratchets, aka if you don't meet your own targets (because of any reason), we'll take more of your shares;
  5. Mis-valued employee stock options, aka "Let's shift the options pool into the pre-money valuation (effectively decreasing the value of your shares), and make it even larger by actually calculating it based on post-money valuation";
  6. Preferred stock with outrageous terms, aka you'll need to grow your business to several times its post-money valuation before you even see a penny of return;
  7. Huge management fees, aka let me get some of my money back from you for stuff I should be doing anyway, even though I'm supposedly investing in you.

I'd be very surprised if any high-profile, reputable VC (or any VC wanting to preserve their reputation) stooped to those types of obviously misleading tricks. Do that once, have an article written about it, and you're burned in the startup community.

Startup cooking: don't eat pizza and ramen  

(...) by only fueling your body with shit, you're also fueling your brain with shit. If you improve your diet, you will improve you work, and in the end, your startup. You'll sleep better, be better rested, and use your time more effectively when you're awake.

Brenden Mulligan proposes a healthy, cheap, basic recipe for cash and time-strapped startups. With a bit of creativity there are many ways to cook healthy and cheap, and eating healthy food (and exercising) certainly will make a big difference to your long-term productivity.

SaaS Economics  

Excellent two-part article, by David Skok of Matrix Partners, about the economics of using salespeople in a SaaS startup. Part 1 and part 2 are both extremely interesting, and although they're long, they're essential reading for any B2B SaaS startup that is nearing the critical stage of having found product-market fit.

It also makes a good case (if such a case was needed) for why VC funding can be essential to winning a market, once you've found a repeatable, scalable sales model.

Visual dashboards for startups  

If you have an office and several people on your startup, having an "always on" dashboard that shows the state of the business can be a great tool to motivate people to work on the right things (although, don't mistake it for actionable metrics - unless, that is, you put up the results of your ongoing tests on your dashboard.

I think it's vital to have a visible, clearly accessible (and always-on) display machine in your office so that all members of the team can see metrics. We have a Mac Mini running two 24" displays constantly, and I'd like us to go bigger soon. Total cost, about $1,000 (and it functions as our stereo via AirFoil). The reason it's important to share visibly is that you should be seeing the data not just when you're thinking of it, but all the time.

This solid article by Robert Laing of MyGengo oulines a number of approaches, tools, pieces of advice, and other miscellanies of use when putting together a visual dashboard for your startup team.

Random acts of violence

Point (tru.che / imakeshinythings):

I'm very disappointed in Urban Outfitters. I know they have stolen designs from plenty of other artists. I understand that they are a business, but it's not cool to completely rip off an independent designer's work.

Double-point (consumerist.com):

Something is rotten in Denmark, or rather, in the I Heart Destination jewelry line of baubles offered by Urban Outfitters. Turns out those $19 danglers in the shape of the various United States of America with a heart cut-out are exactly like necklaces crafted by an independent jewelry designer named Stevie.

Double-tweet point (myaimistrue.com):

Today has been a fun ride. Behold the power of social media muscle. (...) What I do have - and the reason that my call for a boycott on Urban Outfitters spread so fast and wide - is a tribe. A tight knit group of independent artists and crafters that follow me. My cause resounded with them. They spread it, and their friends spread it, and a few big influencers on Twitter spread it, and then it was gone.

Counter-point (regretsy.com):

Now, I'm not generally the voice of reason, so this is an uncomfortable position to take. But I'm just not sure I want to start a boycott over an idea that many people have had, some for years before Truche even opened her Etsy store.

I'm not saying that Urban Outfitters doesn't help themselves to the designs of others. They certainly have a record of pilfering designs, and they may very well have stolen this one. The question, for me at least, is who did they steal it from? And if we don't know that much, how do we know it's really been stolen at all?

Double counter-point (consumerist.com's ^H division):

While this particular seller may have thought up the idea all on her own, different versions of the necklace predate her shop, dating back to as early as 2008.

Maybe there really are no new ideas out there.

"OMG WTF is wrong with you" point (Urban Outfitters):

In her recent blog post and on Twitter Koerner claims that Urban Outfitters stole her designs or was inspired in some way by the items in her Etsy shop for our I Heart Destination necklaces. In fact, a quick search on Etsy for ‘state necklace' reveals several other sellers with similar products (as seen here on Regretsy) who offered their wares as much as a year earlier than Ms. Koerner.

We are not implying that Koerner stole her necklace idea from one of these other designers, we are simply stating the obvious—that the idea is not unique to Koerner and she can in no way claim to be its originator.

"Let's learn from this" point (UserVoice):

This week a blogger with a mere 1,000 followers on Twitter discovered (apparently just the latest in many) an Urban Outfitters product that was a rip-off of an independent artist. She blogged and tweeted about it. The result was that thousands of people retweeted it, she & Urban Outfitters became a trending topic, and American Apparel removed the product from their shelves.

(...)

Any customer can deliver a killing blow, and any customer can deliver a fame-creating endorsement. Feel free to focus on courting "big" bloggers and tweeters for press - but don't risk treating any of your customers badly. You never know what might happen.

My conclusion:

The internet is a batshit crazy place. It has brought a scale of millions to the lynch mob mentality every little village has been capable of for millenia. Like in all of history, many (most?) lynch mobs are uninformed, or actively disinformed, or even deliberately manipulated, but if they're hauling you up a lamppost or lighting a fire under your feet, that's of little comfort.

Be aware of that, be ready for random acts of wanton violence from unexpected sources, watch out for the sudden flash lynch mobs appearing out of nowhere and baying for your blood, and when they do happen, be on the ball and active in managing the mob.

Otherwise, expect to get lynched from time to time.


To raise or not to raise  

Joe Stump, founder of SimpleGeo, has written a pretty solid article examining whether people should raise capital or not. It's a balanced view that looks at both angles instead of dismissing or praising fund-raising outright, and mostly matches with my views on raising investment:

I look at capital, whether it comes from an angel, a VC, or a traditional bank loan, as an accelerant. It's like gas. Sometimes your fire is burning nice and bright. You're warm and have plenty of heat so why pour more gas on the fire? Sometimes, however, you'd like to start another fire, or maybe you'd like to burn down a house, or, possibly, you'd like your little glowing embers to be a fire more quickly than is otherwise naturally possible. These are all great reasons to reach for the can of gas.

Joe lists a number of good reasons to raise or not to raise. Reasons to raise:

  • Your business is capital-intensive.
  • You're at an inflection point and the capital will help you grow 10x faster.
  • You want to get some money out. (I find this one dubious - just pay yourself a better salary!)
  • You can't afford to keep working on your startup. (I disagree with this one, that's using investment as a cushion)
  • It'll give you access to a lucrative partnership.

Reasons not to raise:

  • It's hugely distracting.
  • If you raise too much, you might get hurt in later rounds.
  • If you raise at too high a valuation, you'll be taking early exit options off the table.
  • You give up control of your company.
  • Even after raising, investors are a huge distraction.
  • You may not get the attention you want or need from your investors.

Finally, Joe offers some tips about do's and don'ts of fund-raising, but you should really just go read the article to find them out.

Why VCs do what they do  

Dan Shapiro uncovers some of the reasons why VCs act as they do:

VC behavior sometimes looks insane, but generally it's just sound economics. It's crazy but true: if you know how a VC gets paid, you can pretty much read their mind.

Key points covered:

  • VCs don't want to take any risk
  • They want you to take more money
  • They raise big funds even though smaller ones perform better
  • They're not interested in quick, profitable exits
  • They'll block profitable sales
  • They invest gregariously

Worth a good read to understand the economic incentives of (most) VC firms.

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