daily articles for founders

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

Classic startup mistakes  

This is an interview of Mike Arsenault, product manager at GrassHopper group, which built an application called Spreadable, which was eventually shut down.

Q: Did you talk to customers or just start building?

We just started building. This was probably the single biggest mistake we made. We made the assumption that since our program worked so well for Grasshopper, we could just port over the same functionality to Spreadable. There were major problems with that logic. First, very few of the customers who came to us had businesses like ours. We learned later that there is actually a threshold in terms of customer count for a Spreadable powered referral program to be successful.

For the experienced entrepreneur, the mistakes listed by Mike seem painfully familiar, and even obvious.

If you're on your first startup and thinking "our startup is different, that won't happen to us, even though we're doing the same things", don't. Not getting customer feedback early enough is the classic startup-killer mistake.

Tools to find available startup domain names  

Duane Jackson of UK online accounting software KashFlow, lists some useful tools for finding a good domain name:

A useful list to keep bookmarked for next time you need to do this.

Join a startup after graduating?  

There's been a few articles on the topic recently. Funnily enough, two of them are around the same time and with basically the same title - this must be on people's minds these days.

Are you about to graduate and deciding whether to join a startup or a larger company?

If so, you may want to read these three articles. Two of them outline reasons to join a startup, and one of them outlines reasons not to join a startup.

As for my opinion, I think that if you're determined to start a company in the future, then joining the right startup is the smart move. It will accelerate your learning by years. You might even consider starting your own business right away - though you should definitely count on the high probability that no matter how certain you are of your success, your first X businesses (where X is between 1 and 5, but almost certainly not 0) will probably fail in some way or another.

If you're not entirely convinced, you may find that having a big company on your CV gives you a bit more security, and more time to make up your mind. It will reduce your risk a fair bit, at the cost of a few more years. You will learn a lot in large companies too, by the way - startups are not the sole keepers of useful business knowledge.

There are plenty of startup founders who started off working for large companies, so you'll be in good company whichever path you choose.

Four kinds of entrepreneurial contexts  

Context is everything when it comes to startup advice. It's not enough for the giver of advice to provide context, however. The receiver must also understand his or her own context.

Hidden in this article (superficially, a criticism of the Startup America initiative announced by the US government recently), is a list of four primary "entrepreneurial contexts":

  1. Small businesses: businesses which do not aim to scale to huge sizes, do not get venture funding, and whose success criteria is to "feed the family and make a profit".
  2. Scalable startups: businesses which shoot for the moon, have a chance of getting huge, tend to be disruptive, hire the best and brightest, and often attract venture investment. Their purpose is to search for a repeatable and scalable business model and then pump money into it to scale it up.
  3. Large companies: businesses have existing competitive advantages, are already making a lot of money, but are looking to innovate either because their cash cow is eroding, or they are being disrupted by competitors (startups or other large companies) or even are looking to be the disruptors themselves).
  4. Social enterprises: businesses, non-profits, or hybrids whose purpose to make the world a better place (rather than to take market share or create wealth for the founders).

Each of those is a unique entrepreneurial context, and advice that works in one may not work in another, or not without significant adaptations (which the best startup mentors understand and provide). Make sure you know which context you're operating in and understand whether advice being offered to you fits in with that context.

For example, E-Myth is a great book for the small business contexts, but its suggestion to design your business to be operated by the "least skilled operatives possible" will sink your scalable startup like a stone.

Is your MVP really an MVP?  

Anthony Panozzo argues that most of what entrepreneurs calls "an MVP" is really a "version 1". Instead, an MVP is a tool to test assumptions. If you're not testing specific hypotheses, you're not doing an MVP.

So here are my new question for MVPs. If someone says they intend to “build an MVP” (the build part itself might be a tell), I am going to ask:

  • What are you trying to learn with this particular MVP?
  • What data are you collecting about your experiment?
  • What determines the success or failure of the experiment?

It's worth reading the article if you're unclear on this point.

5 reasons to sell your startup  

Previously, Ben Horowitz made the point that if you are early in the market and have a good chance of being number 1, you should not sell your company.

Elad Gil looks at the reverse question: what are good reasons to sell a startup?

  1. You're exhausted and don't want to keep going. In the context of startups, this makes sense. A startup is usually nothing without its founders, so if the founders just can't keep going, it probably makes sense to sell. However, if you're building a more traditional company, it's worth pointing out that there are other ways to "take a break": you can hire someone to be the CEO of your company, for example, and morph yourself into a more passive shareholder. You'll reduce you profits, but you'll also greatly reduce your stress levels.

  2. The founding team is about to blow up. Same argument as above.

  3. The acquirer is willing to "pay ahead" substantially.

  4. You are about to get massively crushed by a competitor.

  5. You need financial security or regular cash flow. As Ben Horowitz pointed out in his article, that's a pretty bad reason to sell the company. If the founders are running out of cash and considering selling the company to pay the rent, perhaps the company should pay them a better salary. If the company can't afford that, then it's probably not going to sell for a good price anyway.

It's also worth reading Elad's thoughts on those five reasons.

Hiring well is hard  

Paul O'Connell documents his startup's hiring journey, first figuring out why anyone could possibly want to work with them, and then going through many phases:

  1. Talking to their network
  2. Talking to groups, communities and meetups
  3. Talking with students
  4. Talking to recruitment agencies
  5. Looking at offshore options
  6. Pushing the recruitment drive online

They finally arrive at the apparently disappointing conclusion:

There aren’t really alot of conclusions to be made from such a fluid process like this apart from Europe has a shortage of talent. Finding more innovative ways of attracting the hot resources that are developers and making the company somewhere you love to work at is definitely a must, this is a startup, so culture is everything!

While we haven’t found the right ‘first employee’ fit yet we do recognise that as long as we continue the drive for another member of our team, it will happen when it needs to happen. Things happen not when you want them but when you need them. So our journey continues. Wish us luck.

But I think that's much better than settling for 'ok'. "Ok" is a terrible idea when it comes to your first few hires.


One thought from my own experience: what will motivate someone to work with you on your early startup is typically your vision and drive made tangible. If you don't have a concrete plan that sounds like what they want to do, they probably won't be motivated. "Come join us, we have no idea what we're doing!" is not a convincing pitch. Would you work for a company that doesn't really have a clear direction or business?

One is reminded of the parable of the three stone-cutters:

A traveller in the middle ages happened upon a building site. Curious, he asked one stonecutter what he was doing.

The man replied curtly, "I am cutting a stone," and went on cutting his stone.

The traveller approached a second stonecutter and asked the same question.

"See there, this line? I am building a wall there," the second one replied.

Finally, the traveller asked a third stonecutter. The third man stopped what he was doing, and looked at the traveller with tears in his eyes, and said: "I am building a cathedral!"

If you don't have a clear vision and plans for a cathedral, you may struggle to attract any great startup employees (though it might still happen by luck).

Acquiring startups for a living  

Excellent story by Rob Walling about acquiring a product called HitTail from a larger company who neglected it, and starting the process of turning it into a bigger success.

So I tend to focus on ideas that have a 1000x higher chance of success than the next un-monetizable social website you have in mind, but the success I strive for is a bit more modest. Probably close to 1/1000th of the payout of a big exit.

But I believe this approach is far more likely to make you happy, and far more likely to actually make a difference in the lives of more than the handful of people who hit the startup lottery each year.

That can't make his investors happy. Oh wait, he doesn't have any.

Joel Spolsky's method for splitting shares in a startup  

Excellent, in-depth method. Worth reading through carefully to understand Joel's method and thinking. Some of the key points:

  • All founders should get an equal share (no matter who had the idea). Trying to calculate an uneven split is not worth the trouble.
  • Each successive layer of employees split an even-sized yearly pool (among progressively larger numbers of employees).
  • All shares vest, with a vesting schedule such as 25% in the first year and 2% for every successive month.
  • External investments just dilute everyone.
  • If an early employee/founder needs to take a salary, don't solve that problem with a different share allocation - just keep track of how much he/she was paid, and give an IOU to the other founders.
  • Having the idea doesn't mean you should get more equity.
  • People who don't work full-time on the idea are not founders.
  • If someone contributes assets to the company, pay them in cash or IOUs, not shares.

Great tips, well worth reading, though I think the startups that applied all of them can be counted on one hand.

How you grow affects your defensibility  

There's a connection between how you choose to grow, and how defensible your business is from competition. Just like it's easy to throw gasoline on a fire to get it going with a boom, it's stoking the coal that produces all the heat in the long-run.

Paul Bennetts looked at how Etsy grew to draw this distinction:

At the IPO of a company, it’s easy to anchor on just valuation but its more useful to focus how it will throw off cash and how defensible is its earnings stream. In the long run, competition will always drive down returns on equity unless they are defensible.

The majority of Etsy’s GMS (gross market sales) is generated from an organic marketing channel. That is, in CY2014, 93% of site traffic came from direct, organic and email traffic sources (6% from email), with only 7% from paid traffic.

The majority of Etsy’s GMS is generated from repeat purchases. Incredibly, in 2014, 78% of purchases were from repeat customers. If a business is driven by paid marketing - this KPI would typicaly by flipped, in that 78% of customers in a given year would be first time customers.

Both show very high growth but only one is defensible.

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