daily articles for founders

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

Startup gung-ho

Businesses, investors and consumers alike are gregarious. They want to go where everyone else is going. They want to buy success, from successful companies.

This leads to a perversion that affects the startup world as well as the rest of the business world: the need to appear more successful than you are, in order to get business, investment, customers.

This is not entirely artificial. Building a successful business is also about being able to project the right image to appeal to customer, and an appearance of success is part of that. Fake it till you make it, as they say. People don't want to buy from or invest in a dying company, so you've got to look like you're doing great, even if you're an invoice away from technical bankruptcy.

But there's a reverse side to that, which I believe is harmful to some startups: this projection of fake success extends to meetings with other startups and potential mentors at networking events, and because of that, founders who could really use a good dose of advice from a more experienced entrepreneur end up flying blind and making all the same mistakes again.

Startup networking events

When I turned up to my first startup networking event, I didn't know what to expect, so naturally, I turned on the "we're doing great" façade (which, I quickly observed, everyone else did too). Isn't it amazing how, in a high-risk industry where most companies are expected to fizzle out in the next few months or years, everyone is doing great, growing fast, acquiring more users, etc? How often do you meet a new founder and hear "Yeah, well, I've been at this for 9 months and our revenues are still way too small, so I think I'll be throwing in the towel and trying something else soon, because this isn't working."

Another aspect of this problem is that once you start putting up the appearance of success, it becomes very tempting to do so consistently, with everyone. Anyone could refer you to some business, after all, so you have to be on your toes all the time. Otherwise, you might miss out on some great opportunity that would have come your way if only people thought you were doing well. At least, that's how it often feels.

To make matters worse, if you introduce yourself by presenting what's wrong with your business, people will peg you as a negative type, and that's not the kind of founder people think of as being headed for success. No, you have to be an outgoing, friendly, open extrovert with a strong dose of self-confidence and a very slight touch of arrogance.

I'm very lucky that I can genuinely say that at this point, the two businesses that I am involved in are doing very well. But this wasn't always the case.

Missed opportunities

In the times when my companies were not successful, did I get any amazing opportunities by claiming to be successful to my startup peers? I don't think so. Founders have a pretty finely tuned bullshit detector. I doubt anyone was all that fooled. What about investors? With them, faking success is even less useful. VCs will not invest without doing a fair amount of due diligence. Claims that you're doing great when you're going bust will never lead to investment, unless you're a consummate con man.

What opportunities did I really miss, then?

How about opportunities for advice? Entrepreneurs are a helpful lot, but if you don't present your problems clearly, your peers won't be able to help you. Even non-entrepreneurs seem more likely to offer advice and connections if they think you're struggling and they could make a difference. Perhaps the only set of people to whom you might want to project the "appearance of success" are clients, during a pitch. Even that is unclear, though. It really depends on your industry. In some industries, a fledgling startup is more likely to get a foot in the door than a mature, successful company, and expectations will be lower, and therefore easier to beat.

In summary

  1. Appearing more successful than you really are will destroy more opportunities than it will create.
  2. Instead, be honest with fellow entrepreneurs. Don't be negative about it, but don't claim to be doing great when you're not.
  3. VCs will not invest based on an appearance of success, so bullshitting them won't work either.
  4. Appearances of success may work with some types of customers in some industries, but think about it for a few minutes instead of simply defaulting to the startup gung-ho attitude.

Be specific in your requests  

Jason Freedman proposes an approach for people who are looking for job referrals:

Whenever you talk to someone about job search stuff/career advisory stuff, give them a very specific interest. For instance, tell me that you're interested in joining a seed-stage team focused on mobile payments. Or a post-Series A startup doing social discounts. Or a high-growth startup in advertising optimization. Whatever! Just make it very specific.

This is spot-on for job referrals, no doubt, but perhaps Jason is applying his own trick there in being so specific to that field.

Whenever asking someone for help, or for a sale, or for almost anything, being specific about what you want is almost always a great thing.

For example, when doing business development, you can approach it two ways:

  1. Approach lots of interesting people, have meetings/coffees/discussions with them, and let a cooperation emerge.
  2. Figure out what kind of business deal you want, draw up a list of people who might be able to help, then approach them with this plan in mind and let the goal drive the discussion.

Method 1 will certainly yield you more meetings - but guess which method will get you more deals?

Be specific: know what you want, and ask for it clearly.

Why Ty Danco is investing in CardMunch  

An excellent dive into the mind of an angel investor, and how he perceives and analyses deals:

There are just 3 inviolate areas for any investment: 1) A large, addressable market; 2) a capital efficient business model which can create good margins; and 3) great people. The first two I don't even have to consider carefully—you can normally disqualify a deal that doesn't cut it in less than a 2 minutes. But most everything else takes some time. My rough weights are as follows:

10% Product: (with at least a beta product up and testable)

60% People: Who is the team? (Past experience, past SUCCESSFUL experience, technical chops, hunger, humility, coachability, advisory boards) Do I believe the CEO? Do I like them?

10% Distribution: Who's leading sales? Can they sell at the Startup (as opposed to Big Industry Leader) level? How will they reach customers? Also pricing, sales cycle, staffing requirements, etc.

5% Operations: Is this scalable? Tested technology? Dependable outsourced vendors?

5% Social proof: Who else is investing, and do they bring anything besides money?

5% Price and Terms

5% Everything Else

Worth a careful read if you're thinking of raising money.

Corrosive Acquihires  

Acquihires are not that much of a problem in London. There are a lot of talented people available for hire, and for a Google or an Amazon, it'll be more productive to poach great software engineers from the financial services world (you probably don't even need to pay them as much as a bank would) than to pay massive premiums by acquiring startups.

Still, interesting to read this analysis by Mark Suster:

You have been at Google, Salesforce.com, Yahoo! for years. You have worked faithfully. Evenings. Weekends. Year in, year out. You have shipped to hard deadlines. You've done the death-march projects. In the trenches. You got the t-shirt. And maybe got called out for valor at a big company gathering. They gave you an extra 2 days of vacation for your hard work.

And that prick sitting in the desk next to you who joined only last week now has $1 million because he built some fancy newsreader that got a lot of press but is going to be shut down anyways.

What kind of message does that send to the party faithful who slave away loyally to hit targets for BigCo?

I'll tell you what is says.

It says if you want to make "real" money - quit.

One of the trickiest things as a business owner is to think through the unintended consequences of incentive schemes that you put in. It sounds like large companies need to do some thinking there too.

Product vs Business vs Company  

Fred Wilson makes an interesting point about the distinction between products, businesses and companies:

...most of our portfolio companies build the product first, then the business, then the company. And building a company is often difficult for founders because they are so focused on the product.

Roelof Botha, a leading VC with Sequoia, once gave me a great piece of advice in helping founders start to focus on company building. He said founders should think of their company as a product and build it and shape it with the same passion and care. I've taken that to heart and passed it on a few times.

It's worth restating the distinction.

A product is something that you can build and sell, directly or indirectly. It is the "thing" (though it can be a service) that you could make money from via a business. By itself, though, it won't make money, typically.

A business is a set of people, processes and tools that have been structured around a product to enable it to make money. Ideally, a business is profitable, but it may not be. Ideally, a business doesn't depend on any one specific person being a part of it (including the founders), but it may rely on some exceptional people.

A company is an organisation of people that's designed to run one or more businesses successfully, and to create new businesses to respond to opportunities in the marketplace. This must be, ultimately, independent of any specific employee, since companies, unlike products and businesses, are (or should be) built to last for decades.

A business is worth much more than the product that it sells. A company is worth much more than the business that keeps it alive.

This is one good rationale for why some startups (e.g. Facebook, Twitter), operating in environments where it's easy to raise money, have bypassed the "build a business" step to go straight to building a company. The danger with that is that if you don't first build a business, you might end up building a company that's incapable of building new businesses - and that's not worth a whole lot.

Conversely, entrepreneurs operating in conditions where there is much less cash to be raised (e.g. Europe) tend to focus on building a business first - even, in some cases, before building a product.

Soapboxes not optional in the startup business  

Patrick McKenzie of Bingo Card Creator has a problem: his AdWords keep being flagged up as gambling-related (due to the word "bingo") and since Google has extremely unresponsive customer service, it considerably slows down his ability to tweak his Ads, and thus scale up his spending.

So what does he do? He posts an article complaining about this, on his popular blog, and right now it's got 172 points on Hacker News, and has been near the top of the front page for the last 12 hours.

Whether it will get the attention of someone at Google or not is undetermined at this point, but one thing, which Patrick mentions in the HN comments, is certainly true:

Strategically speaking, if I were a startup totally dependent on the Googles (I mostly am, but hypothetically speaking), and I knew that having a soap box was the only effective method of conflict resolution with Google, then I would make it a high priority to have a soap box. It certainly isn't the only reason to have a soap box. It isn't nearly the best reason to have a soap box. But you should have a soap box.

(Incidentally, it isn't as hard as you think. I know, we have it excessively easy in central Japan thanks to the well-known Ogaki tech mafia and the unending fascination of the tech press with elementary school teaching activities, but even without these huge built-in advantages you could proceed to Plan B and write interesting stuff while trying to help people.)

What's your plan to build yourself a soapbox to defend your business?

Questions to ask a VC  

Depending on how you ask those questions, they may be needlessly antagonistic, so be smart about how you ask them. In my experience, most VCs will talk about these points whether asked or not, as part of their standard "this is who we are" pitch.

The questions:

  • Are you accredited?
  • What's your background?
  • When was the VC founded?
  • What is the vintage year of the fund?
  • How much capital is under management across how many funds?
  • How much capital has been deployed out of the current fund?
  • Who are your LPs?
  • What is your investment thesis?
  • How many investments have you made in my space?
  • Can I speak with some other founders you have invested in?

Certainly, if a VC refuses to answer, or appears to try to wiggle out of, one of these reasonable questions (asked politely and in a friendly manner), that's a red flag, and you should dig further before taking investment.

Update: Thomas Ptacek points out that asking VCs about their accreditations is pointless.

Launch within 6 weeks, as a non-developer  

Tracy Osborn, a designer by trade, couldn't find a technical cofounder, so she did the smart thing: she learned to code, aimed for a not-too-technical type of product, and built it herself.

This is a great approach if you don't have a technical cofounder. Rather than bemoan the lack of technical talent, figure out a low-tech way to build your product anyway, learn to do it yourself, and do it. The advantages are multiple:

  • Gain better knowledge of the market
  • Gain better knowledge of numerous aspects of launching a business
  • Create yourself a track record of launching things
  • Understand technology better, so that you can more easily talk to technical cofounders in the future
  • Make some money?
Is it OK to Want to Make Money?  

"Mark, you talked a lot about money in your presentation. Most Silicon Valley legends seem to say ‘it's not about the money - it's about changing the world or solving a problem' that they had." Gulp.


Clearly different people have different motivations but I believe the majority of entrepreneurs would love to make this initial money (I call it "feed the family money") to get it out of the way. Just knowing that you have enough money to make you feel comfortable (however much that is) is enough for most great entrepreneurs to focus on what really makes us happy: building a company, building great products, taking on the establishment, bucking the rules, leaving a footprint on society and in some small way trying to "make a difference in the world."

Some people have an aversion to making money. They subconsciously feel there's something wrong with that, and so they'll push money away. To make that stockpile of money that will "feed the family", you need the opposite temperament: a hunger for money. Getting rich rarely happens by chance - it's something that you have to work hard towards.

If there is a culture in Silicon Valley that "it's not about the money", that culture should change. It's ok for someone who's got $50m in the bank from their last startup to say that it's not about the money, but that advice is a disservice to someone who is just starting out and has no savings.

On the contrary, the advice should be "make sure your startup is making money, and make sure it's making enough that you'll personally get something out of it, and you'll be able to use it that money as a tool to achieve what you want."

Money should not be the ultimate objective, but to achieve many other worthwhile objectives it is a necessary step.

Stop looking for a cofounder  

Sacha Greif offers some tips about why you shouldn't look for a cofounder, and try using freelancers instead. Pull quote:

Hiring a freelancer is not that expensive. You can hire someone for a month for a couple thousands dollars, and a month is plenty of time to build a prototype if that's all you're doing.

If you say that you can't manage to come up with even $3000 or $4000, that tells me two things: first, you don't have any monetizable skills, so you don't sound like a very good person to build a startup with.

Second, you're not very resourceful, and that doesn't play in your favor as a startup co-founder either.

Sacha also goes into several reasons why freelancers are a better thing to look for, if you need help, rather than cofounders.

I think Sacha is spot on about those reasons, but he's missed one that trumps them all:

I don't think it's actually possible to "look for a cofounder", especially not if you already have a project under way. As I've pointed out before:

...networking to find a cofounder is like going to a party to find a wife. You might meet lots of interesting, and potentially eligible, partners while out networking/partying, but those who respond favourably when you mention what you're looking for on the first "date" are probably not the ones you want to marry.

Hanging around places where you might meet potential cofounders is great. Building relationships is great. Working on projects that you're both passionate about together is great. But going out networking explicitly to try and find a cofounder is misguided and will probably cause you trouble.

If you've settled on the idea already, it's time to get early employees, not cofounders. They should be paid. If you can't do it without getting other people's help and you have no money to hire others, then this is not the right idea for you - find one that's more within your reach, or build relationships with potential cofounders and find ideas together.

What you should almost never say is "I have an idea, I should now look for a cofounder".

Update: Also relevant, via Slimy:

A co-founder is not what you need, unless you already have one, and you have as good a relationship with them as the best relationship you've ever had with anyone in your life. If you KNOW you're not going to have a problem, then great.