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daily articles for founders

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

Hiring from Craigslist  

This summer, at Woobius, we hired some interns. We used a British-centric equivalent called GumTree, and it worked well, even for programming interns. The article proposes a repeatable process for successfully hiring from Craigslist:

  1. Create an informative ad with the right information
  2. Create an application form with the right questions
  3. Post to Craigslist and wait for the applications
  4. Select the 10 best applicants and send them 2 further, very detailed questions
  5. Interview the 3-4 people you like best in person
  6. Hire!
How to stop startups from failing in 4 common ways  

Most articles listing ways startups fail are not very interesting. There are millions of ways startups can fail.

This article by Elad Gil is different, because it offers some concrete advice about what to do to prevent each of those issues: running out of money, team implosion, a living dead company, or a bad board/investors. Have a read.

Friends, Family and Fools: the worst investors

"If you're struggling to raise investment from angel investors, the next fallback is FFF funding - Friends, Family and Fools. You can always raise a few tens of thousands of pounds from this source no matter how early you are."

The above is a fairly standard bit of startup wisdom, dished out to all and sundry. It seems pretty sensible on the surface. If your idea is any good, if you're a smart person who can convince others that you'll do well, it ought to be possible to convince someone, anyone, to invest a few tens of thousands of pounds to help get you started.

And since your idea is really good and you are a brilliant new entrepreneur, this may be the best investment decision that those people make in their life. It could be their chance to become rich, piggy-backing on your hard work - but you don't mind that, after all, they're friends and family. And fools, but we'll leave those to later.

Yonder dark clouds

Unfortunately, it's a huge understatement to say that when it comes to startups, things don't always go as planned. In fact, as a first-time entrepreneur, there's a very high chance that your business will go tits-up. Entrepreneurship is a career, you see, and you're just taking your first steps up that ladder. You have no idea what you're doing, even if you wake up every day filled with the confidence to take on the world.

There are ways to decrease that risk, of course. Seeking revenues right away… Keeping costs low… Getting advice from experienced mentors… All those things will help reduce the risk of your first business, but still, chances are against you.

That's alright, in a way, because as long as you don't do anything really stupid and, for example, triple-mortgage your family house to fund your first business, you'll survive the demise of your first venture, and be in a position to take another, better swing at the magical piñata of startup success.

This is where FFF funding screws you over, though.

When can I have that money back?

You see, if you take investment from professional investors, or even other entrepreneurs, they know that it's risky. They know that there's a fair chance you'll screw up and lose the money. Of course, they want to convince themselves that you're different, but professional investors only invest money they can afford to lose, so if they do lose it, they won't cry a river over it. They'll draw a line and move on to the next thing - perhaps even invest in your next venture, who knows. Investors are, largely, rational beings who understand risk.

Friends and Family? Not so much. Friends and Family will often get very upset when they find out you lost their money. You might find yourself highly embarrassed as the story of how you pissed away £20k of Uncle George's retirement funds makes the rounds over, and over, and over again for the next two decades. Not only that, but since they're your friends and your family, you may well feel somewhat obligated to repay the money somehow, sometime, once you've made some more money. It's like a lifelong debt that you can never truly shrug off, unless you're the sort of ungrateful git who probably wouldn't be invited to family reunions anyway.

Friends and Family investments are like the reverse of a convertible note. If everything goes well, they remain an expensive, low-valuation share investment. If things go badly, they turn into a loan securitised by that most valuable of assets: your personal relationships.

One would do well to stay away from such dangerously sharp-edged financial instruments.

Fools

Who's the greater fool? The fool who invests or the fool who takes the fool's money?

"Fool" investment basically means taking investment from people who are not friends or family, and who are also not professional investors or entrepreneurs of any sort. In short, they know nothing about startups, but they buy your sweet talk and decide to invest their hard-earned cash anyway.

The problem with this sort of investment is similar but different to the Friends and Family sort. Fools will not impose an eternal personal debt on you. However, experience shows that when the business turns south, they too will suddenly consider that the money invested should now be withdrawn from the business as soon as possible, and remain deaf and dumb to your declaration that the money has been spent and cannot be recovered.

Unfortunately, this sort of behaviour seems to be the rule rather than the exception. In the midst of a startup failure, which is a depressing enough event to begin with, Fools will drag you down and drag it all out endlessly, until you finally break all communications with them, under unpleasant circumstances.

Whilst a Friends & Family investment is likely to turn into a lifelong debt, a Fool investment will probably turn into a lifelong enemy, someone who will curse you under their breath every time they think of you and all the money you lost them.

Who should you take investment from, then?

There are only two categories of people that I'd consider taking investment from - and this is true at any stage of any business.

The first is professional investors, in which I include people who make regular angel investments, as well as wealthy people who have invested in things that lost them a big chunk of cash before, and who therefore will be fairly rational about the whole process.

The second category is other entrepreneurs, particularly those who have both failed and succeeded, as they know what it takes, they know it's very hard, and they know that if the business is going down the drain, the best thing to do is to let it.

Another key point about investments is you should only ever take money from someone who can afford to lose it. If my advice above falls on deaf ears, at least never take money from someone who simply can't afford the failure. Be very careful about that: you don't want someone's personal ruin on your conscience.

It's worth noting that with the recent advent of SEIS in the UK, investment by both professional investors and successful entrepreneurs is now much less risky than it used to be.

As I hope I've made the case above, taking investment from other types of investors, in particular FFF investors, will only result in trouble and pain further down the line, if the business doesn't succeed as easily as you might have expected.

If you can't raise the investment you need from proper investors, and you find yourself thinking of resorting to FFFs, I suggest you instead consider the idea to be out of your reach. It's better to work on another idea than to end up with the sort of nightmarish scenario that is all too common near the end of an FFF-funded startup.


Start charging right away  

Ilya Lichtenstein:

A lot of startups, especially SaaS startups, are extending their free beta for far too long. So many companies seem scared of pulling the trigger and asking their users to give them a dollar, and evolve from users to customers.

(...)

Their fear is justified, because the second you start charging for a product, all of the bubbly bullshit falls away. The market is cold, rational, and effective. It doesn’t care about your lean startup methods, your rockstar team, or your fawning tech press. All of your assumptions, vision, business plans and pitches are irrelevant.

Money line:

You’ve either built something worth paying money for, or you haven’t.

One of the basic mistakes I made on my previous business was that although we had real users right from the start (just a month and a half into the development), we didn't charge for a year and a half. And therefore we didn't really start learning until a year and a half had passed.

I covered some of the issues with that in my article on fitting your product to the right market.

One good way to get over this hurdle is to work with a natural and competent salesperson. Salespeople will not shirk away from asking customers for money, right now, today.

Appsumo's failed A/B tests  

This article by Noah Kagan once again makes the point that if you cannot fail you cannot learn, and gives up, as examples, some failed A/B tests that AppSumo conducted.

Only 1 out of 8 A/B tests have driven significant change.

(...)

All of these were a huge surprise and a disappointment for me.

How many times have you said, “this experience is 100x better, I can’t wait to see how much it beats the original version?”

A/B tests are one of the most effective implementations of actionable metrics, but make sure the measurement boils down to a change in a key performance indicator. Noah finishes with some tips:

  1. Focus on one priority per week, with 1-3 tests focusing on that goal.
  2. Be patient - it may take a few thousand visits or 2 weeks for a test to be conclusive.
  3. Be persistent - most of your tests will fail, but that's ok.
  4. Focus on things which are likely to get you big results.
How VC firms are managed  

Here's a great article by Jo Tango, that starts off as a description of the way in which VCs are paid (which is relatively common knowledge), and proceeds to explain some interesting facts about the way VC firms are managed (which is not so common knowledge):

The existence of the management company has a few implications. First, the Chief Partner cannot be fired without his/her consent. Every other partner at a VC firm can be, including the ones who have worked hard to earn pieces of the management company. So, a partner at a venture firm is usually an employee-at-will. They can be fired at any time.

(...)

Now, a VC firm’s culture varies from one to another. The Chief Partner may delegate authority so that all partners have a voice in an investment decision–or, he may allow input from others, but in reality, is the one making the decisions. Entrepreneurs need to know that when they pitch a firm. Who is the Chief Partner and do the other partners have power?

Read more here.

Growth vs Capital Efficiency  

Boris Wertz:

I often see two entrepreneurs executing on similar opportunities, but with two very different capital efficiencies. First, there’s the aggressive one who spends money very quickly, building a large team, buying early growth through aggressive marketing and sales, and hoping for a large upround in the next financing round. Then, there’s the bootstrapping entrepreneur who hires carefully (sometimes too little, too late), trying to get as much runway with the current money as possible and build a “real” business.

In other words, bootstrapped vs funded.

Boris makes some good points, though I feel he still glorifies the funded path a bit more than necessary (perhaps because he's himself an investor, and is therefore interested in there being more funded businesses). One essential point:

3 . Evaluate your market: is it winner-takes-it-all?

If you’re targeting a winner-takes-it-all (or almost all) market, then focusing on saving money makes no sense. You’d be sacrificing market leadership. Think about it. Nobody remembers Ryze, or Spoke as early LinkedIn competitors. But if you’re operating in e-commerce or other non winner-takes-it-all markets, then you don’t have to be overly aggressive in the early stages. In this case, you can take your time to fine-tune your model before aggressively scaling up.

I'd turn this point around and say, unless your market/idea has a property, like winner-takes-all or an intrinsic huge-upfront-investment (e.g. Tesla or SpaceX - and by "huge" I don't mean "it'll take 12 months to build v1"), it makes little sense to take funding, with all its associated problems.

Mutual Respect and the barking of dogs

Yesterday, I got involved in a little twitter spat where someone attacked Dave McClure to try and censor his company. The conversation is not important, nor is the person who was attacking him and 500 Startups. I won't link to them to give them greater attention, because they don't deserve it, but if you're very curious and you're reading this shortly after publication, you can look through Dave's tweet history and see parts of the sad excuse for a "discussion" that occurred.

In short, it involved someone getting terribly offended at what someone else was doing on the internet, and lashing out with all the verbal violence they could muster (which wasn't all that much, but was vitriolic enough to be quite sad to look upon). Swear words were used and reused and abused (on one side only), and there was a general lack of respect for Dave or his calm, measured, polite responses. Dave came out looking like a hero of good behaviour compared to his somewhat animalistic attackers.

What I find very interesting is that I got very upset at all this. I was clearly angered by part of this discussion. See, I find abhorrent the idea of a person trying to forbid another from doing something just because they find it offensive. It's deeply, deeply repugnant, scary, and ignominious. It brought to my mind this response by Philip Pullman about his book titled "The good man Jesus and the scoundrel Christ", where he responds to one critic who declares himself offended by the title:

No one has the right to live without being shocked. No one has the right to spend their life without being offended. Nobody has to read this book. Nobody has to pick it up. Nobody has to open it. And if they open it to read it they don't have to like it. And if you read it and you dislike it you don't have to remain silent about it. You can write to me. You can complain about it. You can write to the publisher. You can write to the papers. You can write your own book. You can do all those things, but there your rights stop.

That response made me buy and read the book (which was not all that amazing, though intriguing). I felt it was inspiring, and was a very measured and civilised response to a topic which, in me, provokes red, stupid anger. To me, the attempt by one person to censor another based on what they find offensive is a kind of intellectual violence akin to rape (yes, I use the word deliberately - bear with me) - why is it like rape? Because it is the (usually intellectual, but, in some parts of the world, frequently physical) violent imposition of your way of seeing the world on another person, and it is a violation of someone's mental integrity.

Some of you may think that my use of the word "rape" was excessive. In fact, I know that some people will react to this word emotionally, seeing red, feeling very angry that this is desensitising people to rape, and so on. If you feel like that, great - I apologise for making you feel this way, but this is exactly how I feel about the mob censorship described above. So now we understand each other, let me withdraw the misused word "rape", and please forgive me for using this device to rouse your feelings.

This kind of bigoted censorship is like someone stepping into your head, declaring ownership of your thoughts, and deciding what you're allowed to express, marking some kinds of thoughts as improper, others as allowable, and, fundamentally, imposing their way of thinking on someone who is not them, by force or by threat. To me, this is a straight path to the thought police and the kind of 1984-style world which I do not ever want to set foot in.

Here's the kicker then: because I really care about this topic, I found myself getting angry, and had to make a conscious effort not to devolve into the kind of uncivil, frothing-at-the-mouth nonsensical verbiage that I was deploring in these very attackers!

The line between man and beast is oh, so fine.

Thinking about this further, and looking back at my own history of posting and arguing with people (particularly on the internet, where intellectual violence comes easily since you do not typically get kicked out of internet circles for being an asshole like you would in real life), I have myself descended into this sort of behaviour. I can't even claim it was rare: I'm quite certain it was very frequent, and even recent. Some subjects just get my goat and manage to make me see red, and want to fight, with words, to hurt the other side. It's as deplorable to observe this in myself as in anyone else.

I think it takes supreme self-control to be civilised at all times, even in the face of a heinous lynch mob who wants your blood based on a misunderstanding (often deliberate) or downright fraudulent misstatement of facts. I take my own hat off to the man with 500 hats, for his impeccable behaviour in this particular instance.

Mutual respect

But there's a reason for writing this article beyond getting this off my chest and handing Dave a medal. There's a lesson for everyone here, I think, because I really doubt that I'm the only one who feels the lure of the beast in all of us from time to time.

Here's a thought: beyond the fairly advanced disagreement hierarchy proposed by Paul Graham, or beneath it, rather, there is a more fundamental principle at play: conversation between civilised individuals should always begin, proceed and end with mutual respect. Without this, there is no discussion, no argument - merely the noise of dogs barking at each other.

So here's my challenge, for myself and for any others who lack the buddha-like peacefulness of a still pond, which can never be disturbed by the barking of dogs or wolves nearby:

When someone challenges you by engaging you on a subject which really gets you, which makes you want to hurl words at them for no productive purpose other than getting your anger out - take a deep breath, calm down, and find a respectful way to proceed.

Even if the other side is not being respectful, you owe it to yourself to be so. After all, a gentleman remains a gentleman even in the gutter.

If I ever fail to do so in the future, please do call my attention to it.


What to look for when picking a VC  

Mark Suster:

So finally, how do you know if your VC will stick by you in good times or bad? How do you know if they’ll intervene in a positive way in conflict? How can you tell if they really are good at intros and follow through on what they say they’re going to do.

The best way – of course – is to reference check. Here’s how you reference check a VC (link to post with longer version)

  • look at their portfolio list
  • subtract out the super, crazy successful companies. a) they have no time for you & b) everybody who has a super successful out-of-the-gate company loves their VC because there was no conflict.
  • call the companies that are doing well but not yet household names. Ask about the criteria above.
  • more importantly, call the companies that struggled. You’ll learn most about VCs when you find out how they handled themselves in tough situations. Make sure to call 3-4 members of the management team to avoid one person’s bias

The list of criteria to pay attention to is great, very useful. If your business does require you to take investment from VCs, this is a very helpful article

How to find and recruit a killer advisory board  

Joey Flores of EarBits:

Picking the right advisors, approaching them correctly and making sure they get involved can be challenging and extremely rewarding.

Advisors can help you figure out the things you don't know you don't know - the real killer mistakes that you're not even aware you might be making. And they can give credibility to your company, open doors, and many other benefits.

Joey's article goes into some detail on how they went about recruiting their board of advisors, how they compensated them, and what they got out of it. Worth your time.

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