Here are 10 quality posts from the Founder's Library:
Thursday, 08 December 2011
I believe new entrepreneurs should not take investment. Here's why.
There are two primary types of investment that I've observed being taken: investment as a cushion, to protect the company from having to focus on short-term revenue generation right away, and investment as a springboard, to help the company grow faster or enable a cash-intensive business model. These can be loosely matched with the Seed and Series A stages of funding, though some Series A are cushion funding, and some Seed funding is used as a springboard.
One might expect me to launch into a tirade about how one is better than the other, but that's not really the case. Both uses are valid. However, cushion funding is dangerous for inexperienced founders.
A cushion from reality
Starting a business with zero revenues and zero funds, you have to do what's called "bootstrapping". As UK entrepreneur Iqbal Gandham (who contributed this swombat.com article) argued on TechCrunch, bootstrapping from zero funds is impossible:
The harsh reality for startups is that you need someone somewhere to pick up a tab for around £50k, which of course could be split over two people, i.e £25k a piece, but still that is just £300 or so pounds less than the average salary in the UK.
However, many people commonly raise this initial £50k (though it's often much less) from their own savings (saving £50k is hard, but hardly impossible, when you're an IT contractor earning £50-100k/year). Bootstrapping, then, is creating a business without taking external investment. When it's your own savings dripping through the hourglass, when every expense matters, you end up, hopefully, being very focused on reaching revenues as soon as possible. Lack of funds creates an extreme awareness of the need for more funds.
However, if you have a nice £100-200k cushion provided by someone else, you don't feel the bite quite so much. Sure, you still have a runway, and it is diminishing, and it is something you need to "think about", but it is far more theoretical than seeing the biggest number in your bank account steadily approaching zero.
One of the biggest things that new entrepreneurs (at least in most of the world outside of Silicon Valley) need to learn is not how to build a product or deliver technical work, but how to run a business profitably. It's all these ancillary tasks, from sales to accounting, finance, legal, marketing, and general business management, that take three years to learn (give or take). That learning is one of the most important forms of progress for the new entrepreneur.
In that context, any cushion which slows down the learning, which delays it, makes it more distant and theoretical, is potentially harmful. Most successful entrepreneurs are the kind of people who thrive in sink-or-swim situations, and investment-as-a-cushion can turn this into a delayed sink-or-swim, and even set things up for a sink: having funds makes you more likely to take on fixed expenses start relying on your ability to spend, which you shouldn't - not until you have a functioning business and/or know what you're doing.
So, my advice to new entrepreneurs is: don't take funding, and if you do, take a minimal amount and spend as little of it as humanly possible.
A cushion from short-term focus
The proposition is considerably different for experienced entrepreneurs. Managing your cash flow, your runway, your fixed expenses, etc, is a very hard lesson to forget. Once you learn how to sell a product that doesn't exist based on a reputation that's only in your head, that's a skill acquired for life.
Many experienced entrepreneurs who could fund themselves take seed funding anyway. However, they don't take it "because they couldn't afford to do a startup otherwise", they take the seed funding because it enables them to put aside the short-term revenue focus for a little while and aim for something bigger and riskier. Once you've learned how much the short-term focus matters to your survival, it's very hard to ignore it. The cushion of external investment enables an experienced entrepreneur to temporarily ignore that pressure.
In this situation, I think it makes a lot of sense to take external investment as a cushion.
A springboard to greatness
Finally, the third case almost exclusively applies to experienced entrepreneurs, since, at least in the sane world outside of the Valley, VCs will pretty much never invest in a business that doesn't have either a proven founder or proven revenues (both of which add up to an experienced entrepreneur).
In this case, funding is required to enable the business to grow much faster than by organic growth alone. This is particularly important in winner-takes-all and first-mover-advantage types of markets. Paypal and eBay are great examples of the first: most people will have only one online payment account, and they'll pick whoever has the most popular platform. This winner-takes-all advantage paradigm is so strong that even with all their misbehaviours, both of those players are still firmly lodged at the top of their respective markets. Worth taking investment to get there first? You bet.
For the second case, looking in the enterprise market, many pieces of software like SAP have huge installation costs. A large SAP installation might cost $200m: $20m in software licences, and $180m in consulting fees to set it up. In a market like this, being the first to make the sale is pretty important, because customers are very rarely going to change platform if it costs that much.
In these contexts, taking growth investment makes sense, because otherwise a competitor who does take that investment will beat you to the post. This type of investment is not at all a cushion - in fact, it makes the fall much harder if you miss, turning a moderate success into a complete failure - it is a springboard, an amplifier of your efforts.
If you know what you're doing and are willing to take the risk, springboard investment does of course make sense.
So, in summary, taking investment can be seen as either a cushion from reality (often the case with new entrepreneurs), a cushion from short-term focus, or a springboard to greatness.
Only the latter two are good uses for investment. If you don't yet know what you're doing, if you feel you need the cushion just to survive, then you probably should not take it.
To conclude, it's worth noting that these arguments apply mostly to the 99% of the world outside of Silicon Valley, where spending tens of millions to build a company with zero revenues for years is not an option.
If you read this far, you should get more similar articles by email.
Friday, 26 September 2014
Advice for ambitious 19-year olds ✶
Great read from Sam Altman, well rounded and sensible advice, providing enough context to help someone make a good decision:
No matter what you choose, build stuff and be around smart people. “Stuff” can be a lot of different things—open source projects outside of class, a startup, a new sales process at a company you work at—but, obviously, sitting around talking with your friends about how you guys really should build a website together does not count.
Can't disagree with that or, indeed, anything else in this article. If you're an ambitious 15-19 year old, have a read.
Wednesday, 22 May 2013
All startup advice is wrong? ✶
Evan Williams says startup advice is wrong because it's often not proven properly since it's impossible to A/B test startup advice, and all advice depends on context.
He's right. And wrong. I guess that's ironic? Hah. Anyway.
As I covered in my article on how to write good startup advice articles, when giving startup advice, the two most important points are:
- Avoid over-generalisation
- Provide context to personal experience
If you avoid over-generalisation and provide context, then people can work out if, and how, your advice applies to their situation.
Obviously, if I dish out advice like "only hire A players", then my advice is wrong. But that's just because it's crappy advice. If, instead, I say: "in a company like the one that I'm running (include description), in this context, I found that hiring in this way worked better for me than hiring in this other way", that's advice that is valuable because it includes the context needed to figure out how and when to use it.
The best advice is disastrous in the wrong context. Startup advice is never universally right, but that doesn't mean it's universally wrong.
Wednesday, 11 January 2012
Once your business has been running for a little while, and is starting to make a bit of money, it's worth spending some time to figure out what it is that drives the activity in your business.
Every business will have a different type of "driving process", but in all cases, they are activities (often meetings) out of which many tasks flow out.
The driving process for a project to deliver a piece of software will be the weekly or daily meetings to assign the tasks for the coming day or week. The driving process for sales is a sales meeting where currently active leads are reviewed and actions decided. The driving process for a service being provided to a number of clients might be reviewing the status of all the clients and deciding on next steps for each of them.
Some of those business activities need a certain rhythm in order to pick up momentum. There are various ways to achieve that, but meetings is certainly one of the most common ones. However, in a young company, meetings don't happen unless you make an effort to keep them happening - there's always something else to do that seems more appealing than having a meeting. Unlike the corporate environment, where meetings seem to thrive and multiply until the only thing being done is having meetings, startups have the opposite problem: startups are a toxic environment for meetings.
If, however, you know that a certain kind of meeting drives a key, critical process in your business, you will probably find it much easier to summon up the effort to keep that meeting alive - especially once you see the effect of the meeting on getting stuff done.
Two concrete examples
Here are two concrete examples of meetings driving key processes, taken from my own business, GrantTree. The two most important meetings we have are both weekly, and are scheduled on Monday morning, to drive the work for the rest of the week.
The first one is a sales meeting. We keep all our leads in Highrise, and the meeting consists of simply going through all the active leads in the database, adding any that are missing, updating the information on each of them, and deciding next steps for each lead. This creates a number of actions and follow-ups which end up driving the sales activity over the next few days. It's a clear, tangible, useful meeting.
The second meeting is the tax credit process review meeting. We track the status of all our clients in Trello, and go through all of them (active or inactive) to make a conscious decision as to whether actions are needed, what actions should happen this week, whether a client needs urgent attention, etc. This creates a number of actions and follow-ups which end up driving the tax credit process for the week. It's also a clear, tangible, useful meeting.
Those are the key drivers for GrantTree: sales and delivery. Each business will have its own specific driving processes, which will result in different types of meetings (or even things other than meetings!). I'm not suggesting that your business should have the same structure as mine - however, what you should do is think about what those key driving processes are for your business, and see if giving these activities a weekly or daily rhythm helps to make them more effective.
If you read this far, you should follow my RSS feed here.
Monday, 31 October 2011
Learning to drive and learning to run a business are surprisingly similar endeavours.
When you learn to drive, you don't know what you need to pay attention to. There are, seemingly, a million things going on, and some of them might kill you if you fail to heed them. This can cause a sense of panic in the beginner. When you know how to drive, you rely your experience to know what to pay attention to and what you can simply ignore or deal with without thinking about it.
Learning to run a business is similar. There are a million things that you could do, and some of them will kill your business if you fail to heed them. This can cause a sense of panic in the beginner. When you know how to run a business, you rely on your experience to tell you what you need to pay attention to and what you can simply ignore, delegate or outsource.
When you learn to drive, there are a lot of new habits that you need to build into automatisms. Learning to use the clutch to change gears rapidly while accelerating onto the motorway, surrounded by speeding cars, seems very difficult at first. But the more you do those things, the more they become automatic and unconscious. When you know how to drive, you don't even really think about changing gears, you just do it.
Learning to run a business is similar. There are a lot of new habits that you need to build into automatisms. Learning to detect that the person in front of you is a lead, pitch them in the correct way, follow up, and close the sale, seems very difficult at first. But the more you do it, the more it becomes automatic and unconscious. When you know how to run a business, you don't really think about pitching and closing sales, you just do it.
To learn to drive, you have to actually sit in a car and drive yourself. No amount of reading or talking about it will enable you to drive. You could study driving for years, and even watch someone else driving for years (most of us watch our parents driving for our entire childhood), and still it won't replace the actual experience of driving. While it is possible to build car simulator, even that is a poor substitute for actual driving.
Learning to run a business is similar. You have to actually run a real business yourself. No amount of reading or talking about it will enable you to run a business. You can do all the MBAs you want, and study entrepreneurs and entrepreneurship for years, and still it won't replace the actual experience of running a business. While it is theoretically possible to build a simulation of a business, it's a poor substitute for actually running a business.
The best approach for learning to drive is to get an experienced driving instructor who will sit in the car with you and figure out what you know and what you need to learn, construct a teaching plan personalised to you, teach you those things, demonstrate them when it helps, and help you practice them over and over again in a safe environment, watching out for things that might kill you. Because this approach works, it is used throughout the world.
The best approach for learning to run a business is similar. You get an experienced mentor or coach or close advisor who will be lightly involved in the business, who will figure out what you really need to know next and point you in that direction, who helps you work through tricky business issues, and who watches out for things that might kill your business and that you haven't spotted. This is much less widely used in business than indriving, perhaps because good business coaches are much more rare than good driving instructors. But driving schools for business are getting more common every day.
There is a difference between learning to drive and learning to run a business. In business, there is no such thing as a safe environment. You're on the motorway from day one. And most people drive their first business without an instructor by their side.
If you read this far, you should get more similar articles by email.
Friday, 30 November 2012
Have you seen Glengarry Glen Ross?
It's a pretty awesome movie based on a play by David Mamet. There's a scene in there that has been posted ad nauseam, the Always Be Closing speech where Alec Baldwin puts some serious pressure on the small sales team at some kind of real estate company that's never fully described.
A less well-known feature of that film is the sales pitch and approach followed by that company's star salesperson, Ricky Roma, played by Al Pacino. Ricky is shown spouting ten shades of bullshit in a bar with his "mark", convincing him to buy a product that's clearly not good for him (and very expensive), and then actually lying to his face to try and maintain the sale when his customer realises (after being told by his wife that she'll divorce and ruin him if he doesn't cancel the sale) that he made a really, really bad deal that's about to literally destroy his life and put him in the gutter.
What does Ricky Roma do in this situation? He lies and pretends the contract can be cancelled later, so that he can lock in this "customer" into this sale that will destroy him.
Ricky Roma is a complete asshole and a stain on the reputation of salespeople. David Mamet must not have known a lot of salespeople, to have this view of what a good salesperson is, because that is definitely not how great salespeople work.
Which brings me to real salespeople, the ones who actually make sales in the real world, rather than in fantasy plays. The kind that you need to become yourself, to an extent, in order to be a successful founder.
Successful salespeople don't pressure or bullshit the prospect into a sale. They are persistent, but they are always focused on achieving a deal where it will benefit all parties.
This means that a great salesperson will never be selling something that they don't believe actually helps the customer. And that has to be the starting point of every conversation with a potential customer. How can I help you? Is there something that I sell or someone that I know that can make your life better?
For the last few months, I immersed myself deeply in the sales process for GrantTree, but over the last few years, I've observed quite a few competent salespeople at work, and been part of many sales, both successful and not, and the conversation, particularly when selling high-value, high-price items, always starts with how to best help the person sitting in front of you (or on the other side of the phone call).
How you can help someone always starts with who you are. I'm a serial entrepreneur, with a blog full of advice for startups, with connections and experience that come from 5, 6 years of doing this, and with a business that sells a product that can help tech startups. So my conversations always start with understanding where the person on the other side is at the moment, and how I can help them. The best situations for me to help most tangibly is if there is a match between the services GrantTree offers and the state their business is in, but if those services won't help them, I would never push them into deals that won't provide a clearly positive outcome for them.
For example, some clients are too small for GrantTree to be able to add much value. It's the nature of government incentives, which are based on how much you spend, that the more you spend, the more you can get back. And the more you can get back, the bigger the difference it makes to use a specialist. I regularly speak to founders whose businesses are too small or early to make the most out of GrantTree's services. In those cases, I try to help them anyway - even without getting anything out of it for GrantTree.
This is how I start. My cofounder, Paulina, approaches clients differently. Her strength includes a very wide network of people who might be great connections for the person she's talking to, so naturally she leverages that, rather than tech startup experience, to help the potential client. But again - the focus is on helping the other person, never on trying to squeeze a deal out of circumstances where we can't make a positive impact on their business.
How will you approach your potential customers? That entirely depends on who you are, what you bring to the table. But it always has to be first focused on helping the other person. Otherwise, you are not a salesperson, you are a scammer looking for a quick buck, like Ricky Roma.
Getting over the money hurdle
With that in mind, as a geek, I used to find it hard to get past the fact that ultimately, I was doing this to make some money. This is probably the greatest hurdle for anyone (even people who eventually become master salespeople): realising that it's ok to make money from a deal.
It sounds trite, cute almost, but it's a real problem. Most people who have not spent a considerable amount of time selling will feel that the whole process is made unwholesome because they are, ultimately, doing it out of self-interest too. Yes, I'm trying to help the other person, but I'm also trying to make some money, so I must be selfish, right?
This comes back to believing in your product. If you don't believe that your product genuinely adds to your customers' lives, genuinely makes things better, genuinely helps, then don't sell it until you do, because then you are selling a scam and you should indeed be ashamed of doing so.
However, if you do believe in your product, then focus on that and the issue will go away. Here are some examples:
Patrick McKenzie wrote about how he started charging a lot more for his services after a conversation with Thomas Ptacek, who pointed out the vast amounts of value he was creating for the client business. Charging more enabled him to focus on providing top quality advice to people who could really make use of it. He's since helped many other companies to multiply their revenues. He wouldn't be able to do that unless he charged a lot for it (he wouldn't have the time to do it properly, with the right amount of focus). Patrick believes in his product (and should). If Patrick tries to sell to a business that would be a good fit, I'm sure he has no doubt in his mind that if the sale goes through, both himself and the client will benefit greatly. Is that a product you can believe in? Absolutely.
George, one of our recent hires at GrantTree used to work for Point-Two, who sell air jackets for horse riders that inflate upon impact. These jackets can save your life. He showed me a video recently of a woman whose horse hesitated before a jump. She went over the obstacle. The horse came tumbling after, on top of her. The 600-kg beast landed squarely on top of her. The air jacket meant that she walked away with a few bruised ribs. That jacket saved her life. Is that a product you can believe in? Absolutely.
GrantTree sells help with getting government funding. For the right clients, we increase the amount of funding obtained substantially, through our knowledge of the rules, as well as reducing the amount of time spent preparing the filings and the risk of doing so. Many of our clients would not file, or would file much smaller claims, if it wasn't for us. We regularly take on clients who have lost all belief in UK government funding, and are very surprised when the funding does go through. Or we take on clients who are already making use of the funding schemes and we substantially increase the amount that they get. Is that a product you can believe in? Absolutely.
Given that these are all products that add very tangible amounts of value to the clients, is it reasonable to make money for them? Absolutely. Making money from his consulting services means that Patrick has been able to go around the world helping well targeted businesses with his knowledge. Making money from the jackets means that Point-two have been able to save lives. Making money from government funding services means that GrantTree has been able to grow and help even more businesses. None of those things would have happened if those businesses did not make money.
So don't feel bad about the fact that you'll get money out of the deal too. If you believe your product genuinely helps your customers, then making money from it is absolutely deserved and reasonable.
Focus on the win-win nature of every deal you make and, over time, the self-accusation of selfishness will fade away.
Mythological salesmen like Ricky Roma, who are really highly skilled scammers, have given the sales profession a bad name. If you want to be a successful founder, sales is one of the many skills you need to learn.
Get over your fear of making good money from selling good services by realising that every sale you make will benefit your customers (if your product is worth selling) far more than it will cost them, and start every sale from the point of view that you are trying to help the other person.
Good luck with it! Sales is damn hard, even without misconceived notions about whether it's ok to make money when selling something.
If you read this far, you should get more similar articles by email.
Thursday, 09 December 2010
What have you done wrong? ✶
We’ve all made mistakes. We’ve all done things wrong. We all know it. The important thing is what we’ve learned from those. It doesn’t matter what you got right or wrong, but what you walked away from that experience with and how you’ll use that information to your advantage in the future.
Over the last few years, even while things have been going well, I've made it a regular exercise to reflect on the last 6-12 months and write a brief "lessons learned" document, as if the startup was in fact a failure.
It's a fairly negative thing to do, and can be a bit demoralising, but every time I've come away with a useful insight.
It's also interesting how hindsight changes your "lessons learned".
Monday, 20 December 2010
How to validate a startup idea ✶
Earlier we had an article about how to invalidate a startup idea. On the other side of the coin, here's a method, with examples (both a failure and a success), of how to validate a startup idea.
Of course your idea is pretty good, and of course you can convince people your features are pretty interesting. But without getting down to brass tacks of pricing and business model, you haven't proven anything about your business.
In other words, once you've figured out that there is some interest in the idea, so that it shouldn't be discarded outright, it is often worth doing a more thorough vetting process to make sure that the product is not only filling a need, but can also fill that need productively.
Jason Cohen tells a detailed story of how, using his vetting process, he rejected one idea and followed up on another. Must-read.
Friday, 01 August 2014
Take pleasure in the journey ✶
Rather, you must understand that it is the building, not the result of that building, that matters.
Keep score, so long as you can distinguish between the game and life. Keep score, while also basking in the thrill of generating happy customers and launching unique products and gathering the energy and brainpower of brilliant humans tackling interesting problems.
Or, to put it in the poetic words of Constantine P. Cavafy:
When you set out for Ithaka
ask that your way be long,
full of adventure, full of instruction.
The Laistrygonians and the Cyclops,
angry Poseidon - do not fear them:
such as these you will never find
as long as your thought is lofty, as long as a rare
emotion touch your spirit and your body.
The Laistrygonians and the Cyclops,
angry Poseidon - you will not meet them
unless you carry them in your soul,
unless your soul raise them up before you.
Ask that your way be long.
At many a Summer dawn to enter
with what gratitude, what joy -
ports seen for the first time;
to stop at Phoenician trading centres,
and to buy good merchandise,
mother of pearl and coral, amber and ebony,
and sensuous perfumes of every kind,
sensuous perfumes as lavishly as you can;
to visit many Egyptian cities,
to gather stores of knowledge from the learned.
Have Ithaka always in your mind.
Your arrival there is what you are destined for.
But don't in the least hurry the journey.
Better it last for years,
so that when you reach the island you are old,
rich with all you have gained on the way,
not expecting Ithaka to give you wealth.
Ithaka gave you a splendid journey.
Without her you would not have set out.
She hasn't anything else to give you.
And if you find her poor, Ithaka hasn't deceived you.
So wise you have become, of such experience,
that already you'll have understood what these Ithakas mean.
The more I progress in my journey as an entrepreneur (and generally as a human being), the more I learn to enjoy the journey rather than live for the destination.
If you read this far, you should get more similar articles by email.
Thursday, 26 January 2012
Acquiring startups for a living ✶
Excellent story by Rob Walling about acquiring a product called HitTail from a larger company who neglected it, and starting the process of turning it into a bigger success.
So I tend to focus on ideas that have a 1000x higher chance of success than the next un-monetizable social website you have in mind, but the success I strive for is a bit more modest. Probably close to 1/1000th of the payout of a big exit.
But I believe this approach is far more likely to make you happy, and far more likely to actually make a difference in the lives of more than the handful of people who hit the startup lottery each year.
That can't make his investors happy. Oh wait, he doesn't have any.