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daily articles for founders

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

Paths to $5m  

Here's an article from 2010, by Gabriel Weinberg, doing some maths to calculate how to achieve a $5m exit depending on what sort of funding and cofounders you take. The conclusion:

At no investment and two co-founders, you'd need a $10M sale to get your $5M. At 80/20 that becomes $6.25M. And of course as a sole founder it's just $5M.

Those differences are pretty vast. $5M exit as a sole founder with no investment to $100M exit with several rounds of financing and two co-founders.

And yet the financial outcome is the same. But the probabilities are not. It's much easier to sell a small company for $15M than it is to IPO.

Of course, as Tim Ferriss puts it, why do you want $5m? If it's in order to sustain a certain lifestyle, then perhaps a muse or other lifestyle business may be even easier to achieve.

A good friend of mine has a talent for building these businesses - he can fairly reliably build a business that will make between £5k and £20k a month for a few hours a week of required effort. These are not always inspiring businesses, but in terms of allowing him to have the lifestyle he wants, and enabling him to do what he wants with his time, they are clearly successes.

If you just want a free lifestyle that enables you to spend your time on what you want, and if "what you want" isn't startups, you don't even need to build an exit-worthy startup to get your desired lifestyle.

Seed stage valuation guide  

Here's a good post by Jordan Cooper, providing some ballpark of what sort of company valuation you should look for at different stages of your company. Jordan is Brooklyn-based, so not from Silicon Valley, and yet I think it's fair to say that in most places other than SV, the scale shifts at least one notch against the entrepreneur (i.e. pre-product raises nothing and a prototype built and in the market might raise a hundred thousand pounds):

Here then, is a summary of the stages Jordan proposes:

  1. Still at your old job: $0. Quit your job before asking for investment.
  2. Pre-product: $2M. Raise $300-$700k.
  3. Prototype built and in the market: $3-4M. Raise $400k-$1M.
  4. Product in market and shows signs of growth or revenues: $variable, Raise $1-5M.
Shorten your viral cycle time  

[An] often overlooked viral loop concept is cycle time. That's the average time it takes to complete one loop, e.g. the cycle from sending out an invite to the person who was invited sending out an invite.

(...)

Cycle time is important because along with the k-factor, cycle time determines growth trajectory. You can be exponential, but still grow really really slowly. A decent analogy would be radioactive material with a really long half life. It could take you a while to double...

A brief but helpful article with some tips about how to reduce that cycle time, namely:

  • Send out reminders at various opportune times
  • Create a sense of urgency
  • Shorten the time between sign up and invite
An easy way to increase startup success rates  

Mike Thomsen writing for Forbes, about the culture of working ridiculous hours:

The irony of this increase in working hours is that it usually comes in service of extraordinarily bad ideas, the majority of which end in failure.

Yep. This is not a new point, unsurprisingly for such an endemic problem.

A study in Sleep, the journal of the American Sleep Disorders Association, found significant declines on "divergent" thinking, a category of mostly creative brain functions.

Sounds a bit like Modafinil's effect on me then.

Here's a constructive and effortless suggestion if you want to easily boost your startup's success chances by what, in my opinion and experience, will be a significant margin (more than double I reckon):

Sleep 8 hours a night minimum, and enforce a half-hour walk through a park every day. And a two-hour walk on Sunday.

Your best ideas will come during that walk, and they will make a very tangible difference to your business's likelihood of success.

Sell the dream, not the job  

Some great advice on startup recruiting from Roger Ehrenberg:

You're not hiring to fill a role; you're selling a dream. This doesn't mean being fluffy (which engineers hate); it means clearly articulating the company's big vision and how the right person will help the company disrupt and transform the market.

The rest of the article is worth your while too. Every founder will find themselves needing to recruit someone some day, and those early hires determine the fate of your company, so you have to hire the best you can.

Entreporn: learning vs doing vs wasting time

One comment thread on my Mixergy Premium article yesterday made a number of interesting (if flawed, in my opinion) points.

One of the key points was an attack on the practice of sitting around watching screencasts, reading articles, and doing basically anything except building a business, and hoping to somehow attain success by that method. The point is interesting enough to deserve a brief article.

Entreporn: mental masturbation

There is a category of advice articles, and a way of consuming those articles (as well as better ones) which is wholly unproductive. We all know it. We've all been there, and we've done it over and over again because, well, it's addictive. It gives you the buzz of learning stuff, absorbing new information, adding to your growing skill set. It's a bit like grinding in MMOs - killing wild boar after wild boar, accumulating XP until you're finally ready to make it to the next level.

Unfortunately, the real world doesn't work like that. There's no speed limit. There's not even a speed meter. There's no destination, there are no road markers, there is just purposeful movement vs going round in circle. There is no levelling system in the real world, and no one in the entire universe is going to give a shit whether you read a million startup advice articles, ever. Probably not even you.

Reading business books and articles, watching screencasts and interviews, is utterly useless beyond the first few weeks where you're actually learning a rough map of what stuff there is available for you to draw from. If you know nothing about startups, spending a week randomly reading all sorts of articles in the Founder's Library makes sense. It's like an accelerated brainwashing programme to fill your mind with the awareness of what's there for you to draw from.

But beyond that initial sip on the firehose, the rest is mental masturbation. Unless you have something practical that you need to do, reading about startups, business, and so on, is a waste of time.

Learning and doing

However, there is a context within which "startup advice" articles and other materials (to categorise them with this giant brush) are priceless and invaluable: that's when you actually have something specific that you want to do.

If you want to figure out how to advertise on Facebook successfully, reading articles about the topic, by people who have done it successfully, is so immensely valuable that anyone who doesn't do it must be an idiot.

If you want to fix your business's broken customer service process, watching an interview of an expert who has seen your issues a hundred times and explains exactly what works to fix them is great use of your time. It has concrete and obvious value to you.

In short, if you have a specific problem to solve or opportunity to address, and you want to acquire a specific skill to address that opportunity or problem, then spending time learning rather than just jumping into doing is a no-brainer.

Another way to look at it: if you would consider paying someone to solve this problem for you, then learning about the problem is valuable. You wouldn't pay someone to talk to you about startups in general, so don't waste your time on it.

Qualifying my advice

Daniel B Markham rightly criticised the world of entreporn. That stuff is a waste of time. And I deserve some criticism for not specifying this in my article. Here, then, is the correction, or addition:

If you don't have specific problems that you're trying to solve, don't sign up to Mixergy Premium - or, in fact, any kind of source of "startup advice".

Instead, stop reading this article (it's a waste of your time too), get out of your chair, and go and find some concrete problems and opportunities to measure yourself against.

Once you've found them, then you can go back and make use of the treasure trove of advice on this site, on Mixergy, on HN, and on many other sites that I've linked to here.

You'll no doubt discover that masturbation simply isn't as good as the real thing. Go forth and do stuff, for real.


Dealing with micro-burn-out  

Noah Kagan of AppSumo:

Then it hits me around 2pm, I feel like shit. I can barely push myself to work, I have zero interest in doing anything AppSumo related, my teammates are chatting in our group chat and I want to be doing anything but this.

(...)

Have you ever felt that way? Unmotivated to do anything in your business.

It may be called "burn-out" but burn-out is solved with time, relaxation, hiring and pacing yourself. This was different — an immediate, uncontrollable feeling.

For the record, I feel like this at least once a week. Most people seem to go through this with varying frequencies. My approach to dealing with this is very similar to Noah's:

  • Step away from work for a bit.
  • Try to do one small thing at a time.
  • Write out a list of what you want or need to do.
  • Find the one "blocking" task that you're stuck on and just get it done.
  • Get a life coach.
  • Try and figure out what causes your motivation to wax and wane.

The one thing I'd add is that what's most important (to me) is to not feel guilty about having this ebb and flow of motivation (and productivity). If you let yourself feel guilty about it, you're just compounding the problem, and possibly causing yourself some even worse long-term issues.

It's ok to not be super-motivated 100% of the time. Just make sure you manage this and don't let it last for weeks or longer.

Another tip that I've given before is to have several cool things that you're involved in, so that when you burn out on one, you can switch to another. For example, for me, I've got swombat.com (both coding and writing), GrantTree, Woobius, Cocoa coding (learning in progress...), whatever book(s) I'm reading - all of which I can switch to without feeling guilty about "not being productive".

Dark patterns: good for business?  

The link is a good presentation about Dark Patterns, only 20 minutes long, so worth a watch.

"Dark patterns" are defined as marketing anti-patterns that may bring you a direct return (more users, more money, etc) but risk your brand along the way. Examples include bait and switch, sneaking things into your shopping basket, disguised ads, hidden costs, etc.

Should you use dark patterns? I guess it depends. Facebook notoriously used the Friend Spam to fuel its explosive growth. And, of course, they are by definition guilty of Privacy Zuckering. However, it doesn't seem to have hurt their brand all that much.

This is a controversial point, but I would say that depending on your market, dark patterns may be essential survival tricks that will make or break your business. Could you compete in the highly competitive domain registrar market without dark patterns?

Taking a leaf from the "real world", supermarkets like Walmart or Tesco use many tricks to help increase their sales, including laying out the store in a way that will be likely to increase your spend, and this may have been controversial at some point in the past, but it is now accepted as standard business practice.

Perhaps the smart move is not to discard dark patterns entirely, but to become more savvy at knowing which ones work for your industry, and how to implement them in a way that won't damage your brand with the majority of your users.

The talk makes a great point that if you are going to be using dark patterns, you should do so deliberately, not by mistake, and with full awareness of the impact it may have on your brand.

Impatience kills startups, but patience kills human beings  

Chris Yeh, entrepreneur, angel investor and blogger, makes the point:

People tend to view startups these days as overnight successes. Nothing could be further from the truth. Most successful startups had a long gestation period during which an impatient person would have concluded that they were going nowhere.

Of course, on the reverse of this coin, some startups are just flawed and need to be shut down. When these startups finally perish, the people behind them are free to move to new endeavours. This is not good for the startups that perish, but it is good for the entrepreneurs that get, perhaps, a better shot at the next idea, and it is good for everyone else, since these people will often move on to another extraordinary product.

A business can wait around 40 years before it finally picks up. Can a human being?

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.

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