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daily articles for founders

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

Accounting 101 for US startups   ✶

I've argued before that it's important to understand company regulations, and even included some advice from Brad Feld and myself about how to set up your accounting system.

My experiences are much more focused on UK accounting, since I'm based in the UK. I understand that the US system can be even more painful in many ways, depending on which state you register in. Tim Raybould, a former PWC accountant and now CFO at TicketLeap has published a series of articles explaining his view of how to set up an accounting system for a new startup. It's split into 4 parts:

  1. Key concepts
  2. Picking your accounting software
  3. Financial statements
  4. The monthly close

From a UK point of view, this seems a tad heavy. I feel like most startups don't need to go into such depth (e.g. having a monthly close) to function. However, being aware of what will eventually be "business as usual" in your company's finances is certainly good, so have a read if you're US-based.

What should you do if an experienced mentor tells you it's a bad idea?   ✶

Steve Blank:

And here's the conundrum - given a wise mentor (or VC) with years of experience telling you it's a bad idea - what should you as the founder do?

One thing I always tell founders at the beginning of all my talks is that they should always be aware of the background of the person giving them advice, because that will taint the advice. However, if the advisor does indeed have just the right background so that their advice is highly relevant, what to do?

The other part of what I tell founders is that ultimately, it's their company, their life, their decision. One of the things that makes startups hard is that you can't fall back and blame someone else. You made that call. You're the one who screwed up (if you did).

So what to do then? Steve Blank suggests asking yourself three questions:

  1. Are you passionate enough to still believe?
  2. Can you explain after why getting out of the building and hearing all the negative news you still want to persevere?
  3. Will it change the world enough to make it worth the trials, travails and pain in getting there?

... and then if the answers are positive, ignoring the experienced mentor and going for it anyway.

Asking yourself these questions may well be worthwhile, but in my opinion, if someone with experience and insight tells you that your startup is doomed, what you should do is much less dramatic: discuss why (in detail) with the advisor, to get a good map of how they expect your startup to fail. Then work hard to minimise those risks, which are probably very real.

Under no circumstances should you simply ignore the advice and "follow your passion". Most likely, the advisor's risk map is way better than yours. So use it to minimise risks.

As I often repeat, what you want is a plan that still has risks, but where the potential downside of those risks is minimised and the upside is maximised.

For example, if an advisor tells you "don't market this product to these large companies, they really won't give a shit about it," the right reaction is not to go and do it anyway "because you believe in your dream". Instead, figure out a way to test whether those large companies do give a shit, before spending lots of money on marketing to them.

Advice, good or bad, should never result in you relinquishing your responsibility to think for yourself.

Services vs Product business   ✶

A strong, lengthy article from Mark Suster, explaining that successful services businesses should not all try to become product businesses just because of all they read on TechCrunch about hot product startups:

Firstly, they don't realize how hard product businesses are. They mistake their successes in selling services as a competency in selling products. This is a huge mistake. Secondly, they often ramp up their cost base to accommodate these costs, which when a down market hits they are more effed than those that stay focused. Finally, the focus on the product (envy) means that they take their eye off of their core business, which is services. So the core business suffers.

Products businesses definitely have some advantages over services businesses, at least at a small scale. Running a website that sells a product like this one is the only way to create a business that will earn you money while you're sleeping or sitting on the beach. But, as Mark points out, building a successful product requires very different business skills than building a successful services business (though the technical skills may be roughly the same).

But at scale, both types of businesses take immense amounts of hard work and luck to grow huge and sustain. Very few products businesses scale up without requiring a lot of staff. So I agree with Mark that, if you're aiming to create a large business, you shouldn't discount services as a way to get there.

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.

Tech founder's guide for picking a non-tech founder   ✶

Jessica Alter:

There are many articles and blogs claiming to have THE list of things to do to find the perfect technical cofounder - as if it's that easy to find a cofounder in general. From my purview at FounderDating, however, one of the most important and least-discussed (in the press, at least) questions is from technical entrepreneurs. For the last year the longest- running trending topic on FD:Discuss (the Q/A section of the site) is: how do technical cofounders evaluate non-technical cofounders?

Jessica outlines 4 key criteria:

  1. Good at figuring stuff out
  2. Good at getting stuff done
  3. Highly determined
  4. Good at communication

Ultimately, the kicker is in Jessica's suggestion as to what to do to recognise those characteristics in a potential cofounder:

Start a side-project. These quotients are exponentially easier to calculate when you're working on something real together. It doesn't matter if it's the idea you actually end up working on, you'll see far more revealed doing this than you will over 10 coffees or hypothetical white board sessions. Yes, that also means you can't find the right partner in just a few weeks. So be constantly putting yourself out there.

A few months seems about right. Remember: finding a cofounder is like finding a wife. You don't go out looking for a cofounder, you go out to meet new people and work on neat projects with them, and if you meet one that you feel like starting a company with, great.

Terrifying uncertainty   ✶

Jason Cohen:

So how do you tell the difference between the chaos that leads to unthinkable success and that which leads nowhere at all?

I'm not sure you can.

and:

The fact that you're in over your head, that you almost cannot will yourself to continue, that you're completely in the dark, that you're working yourself to an early grave, that you seem to slide two steps back for every one forward, that nothing's ever good enough, that that your friends and family can't understand why you're turning yourself inside out with no apparent progress, that you yourself doubt whether you're even capable of this…

These things don't mean you're failing. It's always like this, until it isn't.

This is one of the concerns that Eric Ries tries to address with his principles of Innovation Accounting and Validated Learning, which make the learning more tangible so that even if the graph is flat, you have some way to measure progress. That said, it's true that there will always be strong elements of terrifying uncertainty in any startup.

Being able to sleep at night despite all this uncertainty is one of the founder characteristics that is very hard to train up. Either you're comfortable operating with minimal information, or it drives you nuts. If it's the latter, stick to a job.

How to sell your company   ✶

Jacques Mattheij, who posted a guest post here earlier this week, has been working, for a while now, on an in-depth article on how to sell your company.

This is the kind of situation one rarely finds oneself in, but when it does happen, it's worth playing the game in full knowledge of the tricks of the trade (and inexperienced founders are often playing against people who have a lot of mileage at managing company acquisitions). If you're in that position, you'll want to read this guide before making any moves that could cost you.

More about side projects and creativity   ✶

Andrew Peek responds to my post on side projects with an excellent point:

We don't generate creativity by sheer force. We experience it by stepping back. The reason you feel creative when you start a new job, is because the problem set is new - and so the job behaves like a side project in those first few months. The same is true of stepping into someone else's writing - you perceive the writer's grind from a distance, allowing your insight to flow freely and easily - sometimes producing an "of course!" reaction (in the writer) typical of someone who was trying, with all their will, to uncover that same insight.

Side projects exist to refresh the mind. They're our version of a ‘Shut Down' command.

Lately, I am more busy than I've ever been in my life before (feels great, before you ask). GrantTree is buzzing in all sorts of ways which mean that I am happily working every evening I can claw in. Once upon a time, I might have come back home and relaxed in front of the TV. For the last couple of months, I've felt so driven than I just don't feel motivated to do nothing (hah).

But you do need to do something else to remain productive. For me, it's going to the gym (which takes a chunk of time but is absolutely worthwhile from many different perspectives), going to 3-hour acting classes every Tuesday evening, reading Lord of the Rings to my fiancée, spending dedicated time in a café with my iPad and Origami case and writing fiction, or even giving talks to or mentoring startups!

Those things, which have little or nothing to do with GrantTree's main activity, keep me sane and grounded and enable me to be creative in my daily work.

So yes, this is an extremely valid purpose for side projects: to maintain sanity and creativity in a busy life.

When you have no time for side projects is probably the point in your life where you need them most.

Startup failure and startup mediocrity   ✶

Dharmesh Shah:

One of the great things about software startups today is that it's very possible to reach "ramen profitability". That's also one of the bad things. Once you get to "ramen profitability", running out of cash is no longer a way to know that you should be starting afresh and trying something new. You can run a startup like that indefinitely — and many entrepreneurs will do just that, instead of building the next Dropbox and becoming legendary.

I'm of the opinion that people who are really driven to build great companies will use their "mediocre" companies as springboards to bigger and better things, and only those who don't care so much about how big their company is will remain "stuck in a dead end statup", so to speak (and they will be happy about it, because they will get their sense of fulfilment from somewhere else).

Building a startup that pays your salary and enables you to spend your time on whatever you want is no mean feat. Of course, if instead you build a startup that sucks all your time and energy in exchange for a meagre amount of money and success, then that's not a great deal, but then, surely, people stuck in this situation will not be any happier with it than they would be with a job that provided the same results, and they will act accordingly.

Count me firmly on the side that's very pleased that it's cheaper than ever to build a profitable startup.

Working for a no-shot startup   ✶

Randall Bennett suggests, among other things, that you should not feel bad about working for what he calls a "no-shot startup" (one where inexperience meets enthusiasm and results in some kind of startup disaster), because you will still learn from those, and:

Crucially, the biggest advantage of working lower down the spectrum is that mistakes don't stick with you. In general, mistakes don't typically stick with you, but the further up the spectrum you go, the tighter knit the community. Make a mistake at the bottom of the spectrum, and there's enough people making mistakes that it's unlikely your mistakes will give you a bad reputation. On the other hand, screw up a company with $41mm in funding, and those mistakes are more likely to follow you.

That's a fair point. Conversely, I expect that most investors with $41m to swing around won't invest in a team that hasn't cut their teeth on previous ventures. And in fact, they didn't, since the colors.com team, to take the example Randall presents, is actually pretty solid and experienced.

Randall adds that after starting at the bottom, once your first hopeless venture dies out, you should work at moving up the ladder, into more and more successful startups.

I think there's a very valuable further point to make.

Startup MBA

Once upon a time, MBAs used to be designed for people who had 5, 10, or more years of business experience, to enable them to formalise and structure their knowledge of what makes a business tick. This was before the trend became to do an MBA 2-3 years out of university, or, god forbid, right afterwards.

The key point there is that until you have some of your own experience to drawn on, most of the things taught in an MBA won't stick, because deeply, viscerally, you won't understand why they're important.

The same is true for startups, but in reverse. Until you've worked (either as a founder or as a very early employee) in a broken startup, you won't know, deeply and viscerally, why the things that successful startups do matter. There are many lessons that you can only understand by contrasting them with the failure case. That's when the insights happen... "Aha! That's how you're supposed to do that."

In short, breaking your teeth on a "no-shot startup" before joining a successful one will help you make the most out of your time at the latter.

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