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

Take a pay cut to work at a startup

Ellen Beldner, referring to an earlier article which suggests you should raise debt from your employees by paying them less than market rate, comments that the amount of shares per dollar invested (in the form of a pay cut) is lousy compared to other investors.

That's a good point, but it's ignoring a number of other factors:

Risk Analysis

If you're going to analyse risk in this way do it properly. Guess some probabilities of huge exit (say 1%, if you really believe in this startup), moderate exit (say 20%), and failure (say 79%), and calculate the risk-adjusted returns on your investment (i.e. multiply each probability by the return associated with it).

Then decide based on that and your risk appetite, and the risk-adjusted return, not based on "other investors are getting a better deal". Of course they're going to get a better deal: they're putting in millions of dollars (in the VC's case) or, alternatively, they bet everything into the startup when it was just an idea and the risk profile was much worse (in the founders' case).

Lifestyle factors

Also factor in the kind of lifestyle that the startup will offer. This heavily depends on the startup's culture, but don't ignore that factor. For some people, the alternative will be working for a large corporation, which will result in a very different lifestyle.

Career development

Working at a startup will not only allow you to learn things that you wouldn't learn while freelancing or working at a large corporation. It also allows you to meet people that you wouldn't otherwise bump into. It is not uncommon for the founders or investors of startups which previously employed you to invest in your startup, when you decide to start one.

Passion

Compared to a market rate job at a large corporation, the right startup can give you the opportunity to work on a cool product that you can really be passionate about. I would add that, unless you feel that the product is that awesome, you probably shouldn't work on it.

Your current situation

Your current financial situation is also a factor in the decision. Of course, if you have a mortgage and three kids, you probably won't be interested in below-market-rate jobs at a startup. You simply can't afford to make that "investment".

But not everyone is in that situation. If you're 24, single, still in the student mindset (i.e. willing to live in a shoebox on a shoestring budget), and want to get the best out of your job, rather than have it grind your soul out of you in exchange for a bit more money, working at a startup can be a great experience.

In conclusion

Numerous factors are relevant when choosing whether to work at a startup. The pay cut is just one of them.

On the other side, if you're running an early startup and you can't get people to work for you at below market rate, you should ask yourself whether there's something fundamentally wrong with your idea that makes it so unappealing.


Startup sales: #4: Make it easier to say yes than no

First, second, third parts. Now fourth part:

#4: Make it easier to say yes than no

This is a simple one: make the default next step a positive one.

For example, if a sales lead has been going cold and you want to give them an ultimatum to react or be forgotten (which might be the right thing to do to spur them to action), don't end that communication with "if we don't hear back from you, we'll get in touch with you". End with something where it's easy to say yes.

For example: "I believe it makes sense for you to buy X since it will generate Y for you. Previously, you said Y was of interest. Please let me know if that's no longer the case." With this phrasing, they should, out of politeness (and assuming you haven't been a pest in previous communications), get back to you if they don't want to go ahead.

This is not a dishonest manipulation technique. It is simply about phrasing the question in such a way that the default is positive progress that brings you closer to a sale. It's the sales equivalent of asking an interviewer "So, if I get the job, when should I plan to get started?" rather than "So, if you don't reject me, when should I plan to get started?"

There are, of course, all sorts of further language tricks that you can use and abuse in the closing phase of the sales process, but this one is so important that it's worth highlighting separately. If you ask for a no, you're more likely to get a no.


Use your competitors' marketing budget for your campaigns  

This article by Ilya Lichtenstein proposes a method for competing against bigger, better-funded companies:

  • You can learn from their experimentations what works best in terms of marketing message, demographics, etc, which saves you from having to run your own expensive A/B tests.
  • You can find the keywords which they're not managing well and target those.

It's worth pointing out that this is an evolving pattern. Five years ago, most companies had no clue about SEO/SEM. These days, they will hire competent firms to do this for them, and so the result will be a lot of money spent on optimising ads, often with some skill.

As a smaller competitor, you need all the help you can get. Learning from your larger competitors is a no-brainer.

Retention and startup context  

Rob Fitzpatrick:

Increasing retention to infinity (and beyond) is Very Important for SaaS. It’s generally easier to continue selling to an existing customer than to go out and find new ones.

It is not identically important for all businesses. (...) There are lots of specific situations where you’d do well to turn your back conventional startup wisdom and best practices.

Indeed. There are no best practices in startups. Dogma be gone. This is why uncontextualised, generic advice is so dangerous.

Rob goes on to outline two common kinds of businesses which should not try to drive retention up. Read it here.

Frog Driven Development  

I'm generally skeptical of outsourcing development in technology startups, although I have seen it work in rare occasions. Outsourcing your core competency is risky, and if you're a tech startup, your core competency (and what you will be competing on) is tech. If that's outsourced, you have little or no control over it.

This article presents an outsourcing horror story, but makes a larger point that applies also to projects without any outsourcing. "We're nearly there" is a cruel misconception. Admitting mistakes and fixing them for the long term is almost always better than assuming that the next corner will be the right one and all the problems will be left behind.

Problems only accumulate unless you take the time to actively fix them.

Of all the lessons learned in this process the most important one is never to stop asking yourself if you are being a frog. Keeping going on the false promise of “we’re nearly there” is lethal. It leads to the equivalent of a startup killing death spiral that can suck up all your most valuable resources: morale, money, focus and worst of all, time.

Running a business vs building a product  

Elad Gil writes:

As the CEO, you need to keep your eye on the underlying product and business fundamentals of what you are doing. If you can not keep focused on the business side you must hire someone who will. Otherwise there is a reasonable chance your company will die. The two most common ways for a startup to die are founder conflicts and running out of cash. Running out of cash is often avoidable.

This is why I often advise people who want to play the startup lottery but have no business experience to try building a profitable bootstrapped business first. You learn a lot from running such a business that is just as essential when running a funded business.

Failing in an interesting way is hard. If you fail at the basics of running a business, you've not failed in an interesting way. If you fail because of some predictable startup issue like a founder conflict or building something nobody wants, you've not failed in an interesting way.

Failing in an interesting way means avoiding all those obvious traps and failing for some reason that is actually challenging and unforeseeable - for example, a smarter, more aggressive competitor stole your lunch, or if a political event simply made your product unsellable - those are interesting ways to fail.

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.

How to get your startup on Hacker News

In networking events, I get asked surprisingly often about how to get a startup to be discussed, somehow, on Hacker News.

Why get on Hacker News?

Getting your startup on HN is useful:

  • HN is a thriving community of entrepreneurs - probably the biggest on the web - and their feedback is valuable. It's often thorough, honest, qualified, and sometimes unpleasant. It can help you significantly improve your early startup: better define your offering, tune your landing page, etc.
  • There are many early tech adopters on HN, so if the app is useful to them, you can get some early users.
  • Because most of HN is made of entrepreneurs, they're not allergic to commercial offerings like many other popular forums on the web. They won't get offended that you're trying to make money from your hard work. In fact, they'll probably suggest better business models for extracting money from your users.
  • Finally, coverage on Hacker News can sometimes lead to being picked up by other tech websites. I know a few editors of major tech news sites who browse HN regularly.

So on the whole, I think getting your early stage startup reviewed by the HN community is a no-brainer. You can only gain from it.

How should you go about it?

The best thing to do is surprisingly simple: post an "Ask HN: Review my startup, xyz.com" post.

To do this, submit a post with no URL and following the pattern above. Then, log on to the #startups channel on the Freenode IRC network and ask people for their opinion about it. If your request for feedback seems legitimate, you will probably get some comments and some upvotes, and that will lead, eventually, to more attention from the wider HN community.

Some tips about this process:

  • Do this when you're genuinely looking for feedback. Posting an "Ask HN: Review my startup" when your company has been going for 5 years and has 20 employees would be disingenuous (and probably useless, since by then you probably know more about how to run your business than we do).
  • The number of actual comments can vary greatly, depending on the time of day, the day of the week, the other stories in the community, the startup that you present, etc. The number of responses will easily vary from a handful to over a hundred. Don't take it personally.
  • Be open and responsive. When people post feedback, don't get defensive, or they won't provide any more feedback. Accept it, and try to respond constructively, maybe asking a few clarification questions. Never tell the person providing feedback that they're wrong.
  • Ask for specific feedback on areas where you have concerns (e.g. "I'm particularly looking for feedback about the UI").
  • Include the link in the body of your post. It won't be hotlinked, but don't worry about that. Do not include it as the "URL" part of your post, some people consider that bad form.
  • Don't ask HN to review your startup several times in a short span of time. It's ok to ask for more feedback a few months later, but refer back to your earlier post and mention how you addressed the earlier feedback.
  • If you don't get any upvotes within the first half hour or so, it may well happen that no one sees your post, particularly if you made it in a very active period (e.g. mid-day US-time). Make sure you get some people, such as the IRC channel, to have a look within the first half hour.

You don't strictly have to follow these rules. In fact, the top "Ask HN: Review ..." posts on SearchYC have no post body and have a URL, but those tend to be exceptions. If you want to maximise your chances of getting feedback even if your startup is not yet great, try to do something like these examples.

What if you're not looking for feedback?

Some startups are past the initial feedback stage. That's fine. They can still get on HN, but the approach is different. If you want to get some HNers' attention at a later stage in your startup, the best way, in my experience, is to share something valuable with the community. For example:

  • A post detailing how you addressed a certain technological challenge, with plenty of meaty details. For example: "How we scaled our video encoding from 10 daily users to 10'000 without buying more hardware".
  • A post with an original viewpoint about some aspect of starting and running a startup. Unoriginal points tend not to get upvoted, so try to find a unique slant. For example: "Why we chose to have no permanent employees".
  • A post that "opens the kimono", talking about how your sales have gone, what worked, what didn't, and so on, in a way that readers can learn from. For example: "Our sales for the first 12 months".
  • A post that tells a very personal story about some aspect of your startup, of the kind that people normally don't hear about. For example: "How we dealt with a cofounder dropping out in the first 6 months of the startup".

There are many other types of posts that work. If you read HN with some regularity, you'll start to recognise them.

Update: Paul Graham noted here that "Review my startup" posts by brand new users will often be deleted as spam. If you want to post this kind of post, it's a good idea to create a user some time before then, and be reasonably active for at least a few weeks before posting about your startup.


Management is a support function  

Here's a great article from Joel Spolsky, which makes the point that management is not about command and control, but about providing support:

Thus, the upside-down pyramid. Stop thinking of the management team at the top of the organization. Start thinking of the software developers, the designers, the product managers, and the front line sales people as the top of the organization.

The “management team” isn’t the “decision making” team. It’s a support function. You may want to call them administration instead of management, which will keep them from getting too big for their britches.

While there is certainly plenty of decision-making required at the "top" (mostly about strategic direction and key hires), the decisions on what to do to react to specific daily business situations should be driven by those closest to those decisions.

The sad thing is, management gurus like Peter Drucker have banged on that drum since the 50's, and yet many businesses still operate as if centralised decision making was viable to build large businesses. It's not. As Spolsky (and, a few decades ago, Drucker) point out, centralised decision-making is simply not scalable.

That being said, of course, "building a large business" is not everyone's aim. If you don't want your business to get big anyway, you can probably sustain centralised decision-making until your business gets to a few people or so.

Don't register your idea as a company  

Me, in January 2011:

I want to start this new year with an admonition, for all those who are still working at a day job, and thinking that at some point they may want to run their own business, but who haven't decided to do so yet.

Register a business, today.

Joel Gascoigne, today::

When to incorporate is one of those topics which comes up time and time again, and there is much conflicting advice out there. I’m lucky enough to have a number of different experiences and perspectives with this, and I now believe that by far the best option in almost all cases is to delay registering a company for as long as possible.

So who's right?

Actually, both of us are, because we're talking about different things.

I advise people who are hesitating on the cusp of starting their own business to register a business right away, because this will get them over one of the biggest mental hurdles and force them into the company owner mindset.

However, there's no forced congruency between this business, which is a step towards personal freedom, and "registering a business for an idea". The business that I propose you register today, if you haven't yet, is the a business that will largely represent you. It can be used for many purposes - including as an incubator or even long-term receptacle - for ideas, but that is not its sole purposes. Registering a business for what is merely an idea with no real validation is, as Joel correctly states, not a good thing.

However, that doesn't mean you should operate without the protection of a limited company. A great many successful entrepreneurs that I know have several businesses, including one that they use for their various consulting and speaking gigs. Just because an idea starts in one business doesn't mean it needs to remain there always. As the sole shareholder, you are allowed and able to transfer the assets to a new entity as and when it makes sense - e.g. when you need to take on shareholders.

So, do register a business, but register it for you - not for an idea.

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