swombat.com

daily articles for founders

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

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.

Business plans? I've heard of them  

Dan Shapiro asks the question and also provides an answer:

... what to do when an investor requests that you conjure an obsolete 30-page document from the ether and send it to them that evening [?]

(...)

Whenever an investor asks you for your business plan, send them the same damn packet you send to everyone else. In our case, that was a 3-page “executive summary” and a dozen slides giving an overview of the business with some screenshots of the product (it was mobile, and 2006, so there wasn’t any easy way to send them a demo). Don’t apologize and don’t mention the business plan.

Sound advice in the tech startup context, but I'd like to dig a little further into it.

Business plans are outmoded, right?

Business plans are universally reviled among tech startups, both on the entrepreneur side and among investors. And that's fine. Most tech startups operate under conditions of extreme uncertainty, and large swathes of a standard business plan become utterly irrelevant in those conditions. Five year financial projections? You gotta be kidding. Even providing a high-level plan of what features will be built can be misleading. "We'll build what the users tell us they want through A/B testing their wallets" is a better answer for that section.

That said, as Dwight D Eisenhower (and no doubt many others) put it:

Plans are worthless, but planning is everything.

There is, of course, the romantic notion that a couple of hackers with a dream, a garage coffee shop, and a couple of old computers high-end macbook pros (this is the 2011 version of the dream) will just build, build, build, and out will pop a magical startup success. And it does happen sometimes, in very specific circumstances where the stars were aligned just right (I'm looking at you, Github).

But most of the time, those startups fall flat on their face. If all you do is build it, they won't come - 99% of the time at least.

So, what does "planning" mean in the context of a startup?

Context is everything

The answer, of course, depends on what type of startup you're building. Here are some examples of things that even a scrappy startup should think about, even if no concrete decisions are made:

  • Is there competition? What's the competition like? What will we do better? What will we do worse? Which features will we focus on? (basic competitive analysis)
  • Is there demand for this feature set? If we're building a B2B startup, can we get potential customers to show enthusiasm and even sign non-binding letters of intent before we get started working? In a B2C context, can we get people excited about it? In other words, does the idea pass basic validation tests? (basic customer validation)
  • What are the minimum features we're going to build before we get our first set of users on-board? (basic planning)
  • Is this a growing market? Will the rising tide float our boat or will we have to fight for survival in a shrinking market? (basic market research)
  • Do we have the skills in-house to build all this? Will we need to budget for external work for part of the product? Should we do it in-house (slower, but better) or outside (quicker but more expensive and probably lower quality)? (basic planning)
  • When do we run out of cash? By when do we need to show traction so that we can go out and spend 6 months raising the next round of funding? (basic financial forecasting)
  • What's our route to market? How will we reach users concretely (note: "viral" is not an answer to this)? (basic marketing)
  • What's the vision driving us? Why are we in this, other than making a bit of money? Is this is worth 3 years of our lives even if we fail? (basic mission statement)

And so on.

None of those need to be answered to a great level of detail. But if you haven't given any thought to any of these, you are not ready to start your business. Of course, you may start it anyway, and you may even succeed, but smart founders try to stack the chances for themselves, not against themselves.

So, about that business plan...

Going back to the original question, one thing that's implicit in Dan's answer is that they did answer all those questions before they went pitching. Nobody ever said that a "business plan" has to be a boring 20-page document. It can be a boring presentation too! (or even a fun one, if you actually want funding)

When an investor asks for a "business plan", really they're asking for some kind of "emailable thing" that they can look at afterwards to help make up their mind about whether to invest. No intelligent investor is going to say "sorry, I can't invest, because your business plan is a PDF of a presentation, instead of a word document."

And you should have some kind of executive summary or slide deck that you can pass around to leave people with something they can look at. And Dan Shapiro did have that. So, although their business plan didn't fit the template from 40 years ago, they did have a business plan. And they sent it to investors who requested it, and got their funding.

Business plans aren't obsolete anymore than letters are. They've just evolved to match the times. Letters have become emails, and business plans have become executive summaries and pitch decks. If you want to raise money, you still need a business plan - the 2011 version.

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.

Start something small  

Joel Gascoigne:

What I’m starting to notice more and more, is that great things almost always start small. Most of us know that Branson started the Virgin brand with a student magazine, but Virgin is just one of many examples which shows that the reality is counterintuitive: actually, the best things we know and love started as tiny things.

I’ve found that if I look into my own life, I find similarly that some of the most important achievements I’ve made started as little projects. My startup Buffer itself is a great example: it started as a two page website and in addition the short blog post describing this process has now turned into a talk I’ve given more than 30 times.

This applies in other areas of life - programming, for example, has Gall's Law:

A complex system that works is invariably found to have evolved from a simple system that worked. The inverse proposition also appears to be true: A complex system designed from scratch never works and cannot be made to work. You have to start over, beginning with a working simple system.

The real use of money is to buy freedom  

Paras Chopra:

The only, legitimate use of money is to be able to say no to things you don’t want to do and yes to things which feel out of reach.

I find myself in a similar situation to Paras. I have enough money to afford whatever gadgets I may want, but what's the point of buying all those things?

I firmly believe that material possessions may end up owning my life rather than I owning them.

About a year ago, I was walking back home, and had to cross a bridge, and the thought crossed my mind: what if the bridge was closed forever and I could never get back to my flat?

I felt liberated when I realised that I didn't care. The only possessions I really care about fit inside a small backpack: a laptop and a portable hard drive. A nice new iPhone. A recent iPad with books on it. That's about it. The other things I care about are people, but those are different.

Sure, I like having a 42-inch TV in the nice new flat I moved into, and the under-floor heating in the bathroom is awesome (as is the plentiful hot water from the taps - my previous flat didn't have hot water from the taps for 3 years). But really, in the greater scheme of things, those are just luxuries. I can easily live without them - and I think I'm richer for it.

More thoughts on this in Paras Chopra's article.

Getting into a startup right after university  

Some great tips by Jean Hsu. Startups won't hire fresh graduates on the basis that "they can do the job already". They will hire on the basis of potential. It is understood that it will take time and training to grow a new graduate into a fully productive hire (and that, largely, is why graduates make less money than experienced hires).

Here are Jean's tips:

  1. Try to get personal recommendations, by letting your friends know you're looking for a startup job, and going to relevant meetups and events.
  2. Tailor your resumé to the job you're applying for.
  3. List extra-curricular projects. In my opinion, those are often much more interesting and convincing than anything you may have done in class.
  4. Have an online presence so you stand out.
  5. Prepare for the interview by reading up on the startup and familiarising yourself with the product.
  6. Be relaxed, friendly, comfortable (be yourself!) during the interview - they're not just testing you on your technical ability, they also want to check they can work with you day in day out.

Don't forget to evaluate whether you want to work at that startup. For a new graduate, the calculation is slightly different, in that almost any job will teach you a lot, but don't let yourself stagnate during your first few years out of university - they are possibly the most important of your career, in terms of their potential to set your direction for the next 10, 20 years.

The main advantage of a startup job for a college graduate is that you will be able to grow into a position of responsibility much, much faster than at a larger company - but you do need to go about it deliberately to make the most of it.

Another piece of advice: if the "startup" turns out to be nothing like what it advertised itself as (some people are unscrupulous about calling their small businesses startups), leave quickly! The personal growth opportunities in a small business which isn't growing are usually extremely limited.

The cost of funding may be your freedom  

This article by Kirill Zubovsky underlines the point I made on Monday about the difference between Entrepreneurs and Startup Founders.

I was free; free to think, free to learn, free to do whatever I wanted, as long as it didn’t require money. Sure, there was a question of what would happen when I ran out of money, but that question was for the future, and I didn’t concern myself much with the answer. Life was simple and life was good!

Then Kirill raised money.

The way I see it, I am now responsible for the dreams of my team, and that’s not something that should be taken lightly. I don’t mind the pressure, I love it, actually. But No one tells you about the long tail, when you start a side project, dreaming of it to become the next big success story. Keep in mind that starting is easy, but you will need to have the energy and the dedication to keep going. If you start a company, be ready to commit to the lifestyle.

And the money line:

I promised our team that we will solve certain problems together, that they will get to work in an environment we’ve created, and as much as achieving these goals is everyone’s responsibility, I have promised and I cannot fail. This is my strongest motivator to wake up in the morning.

Taking funding (which, once again, I think is valid for some businesses) makes a big change to your attitude, to your life. From freedom to commitment, from profit to promises, from responsibility to yourself, to responsibility to others.

If one of the things you want out of running a business is the independence of making your own decisions rather than being beheld to someone else's opinion (and I know a fair few serial entrepreneurs who are fiercely independent in this way) don't take funding.

Formula for elevator pitches  

A simple formula for an effective elevator pitch, via Elliot Loh:

We solve [problem] by providing [advantage], to help [target] accomplish [target’s goal].

And, once it makes sense, bolt on:

We make money by charging [customers] to get [benefit].

Read up on SEO and Link Building  

Kristi Hines has put together this list of (reputable) blogs, articles and tools around the topic of SEO and link building.

For many tech founders, SEO is associated with spammers, direct marketers, and other "social media experts" - i.e. fluff. But that's a one-sided view. People like Patrick McKenzie demonstrate that SEO can be an extremely powerful part of your toolset.

This list of links, along with Patrick's blog is a great starting point if you want to learn more about SEO and link building.

Merchant accounts, or Paypal  

Here's a detailed article by Rob Walling, that, as well as giving a light overview of the way he thinks about acquiring and developing businesses, also makes a strong case for using Paypal's Website Payments Pro (a merchant account equivalent) instead of applying for a merchant account via Authorize.net or others.

I have never applied for a merchant account via a payment gateway, so I can't comment on that. However, before jumping onto Paypal and embracing its horror stories of frozen accounts and held funds, it's also worth considering another option: getting your merchant account from a traditional bank, and picking a payment gateway separately.

The benefits of going via a traditional bank is that they tend to be much more responsive. You typically get an account manager with a name and a phone number and there is no "wait X weeks and we won't tell you that your account was denied" type of process. Banks are serious about opening accounts. And, if you know how to open a merchant account, it's not that hard (though it can take a while, so start early). This is what I've done for my last two businesses, and I've had no trouble with it.

Sometimes, the old way is better. But, if you're just testing an idea and you don't know whether it's worth the hassle of opening a merchant account for it, Paypal is probably more than adequate.

more
Google Analytics Alternative