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daily articles for founders

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

Focus and myopia  

Here's a really excellent article by Dharmesh Shah that deconstructs the glib advice that "focus is key":

So, here's my point: Talking about focus is useless unless you consider the level of abstraction you're talking about. If you squint just right, any activity you're looking at seems de-focused. In the iPod example above, I could argue that Apple showed considerable restraint and focus by not going out and building a Hollywood production studio and creating content. Or, I could argue the flip-side and say they lost focus from their core.

I agree that focus is about saying no. But that's not all of it. By saying no repeatedly, what you're buying yourself is the ability to say yes to something much, much better. You're not freeing up resources just to hoard them away. You're freeing them up so you can apply them better — either by saying "yes" to something new or doubling-down on bets you've already made. So, the benefit of saying no to a bunch of wrong things is only realized when you find a way to say yes to the right thing. Important note: I'm primarily talking here about high-level company strategy. If we were talking about focus as it applies to product management, saying "no" to new features has intrinsic value by just keeping things simple.

Advice is always highly contextual, and most people don't take the time to figure out whether their context is right for the advice they're looking to apply. This type of article is very useful in that it takes an apparent truism and shows how variable it is.

After all, the opposite of every profound truth is another profound truth (Niels Bohr), so unless you know how to apply profound truths usefully, they can hurt you as much as help you.

Read the whole article here.

Strategic investments in early startups  

As many startups are created by people with ties to related industries, it can be very tempting to look for "strategic investment" from the businesses that you have the strongest links with. This article makes a good case for why that's a bad idea.

The right way to accept strategic investment is from a position of power and independence, and this is best exemplified by the recent investment by WPP in Buddy Media. Buddy had just raised $15 million Series C at a high valuation in the wake of building a massively successful, fast-growing business.

How to find a technical cofounder  

Jeffrey Talajic discusses how to find a technical cofounder. In short, go to the relevant networking events, talk to people, discuss your project, let them self-select, and bring them on slowly while testing out the relationship. Oh, and be picky about who you select.

Decent advice, apart from one thing: I believe that if you've started your business already, it's probably too late to find a technical cofounder for this one (though you can find a good CTO-for-hire). But you can find a tech cofounder for your next business.

You shouldn't start a business with someone you've just met. Let the relationship evolve, grow, and solidify, and then consider starting a business with them.

How you grow affects your defensibility  

There's a connection between how you choose to grow, and how defensible your business is from competition. Just like it's easy to throw gasoline on a fire to get it going with a boom, it's stoking the coal that produces all the heat in the long-run.

Paul Bennetts looked at how Etsy grew to draw this distinction:

At the IPO of a company, it's easy to anchor on just valuation but its more useful to focus how it will throw off cash and how defensible is its earnings stream. In the long run, competition will always drive down returns on equity unless they are defensible.

The majority of Etsy's GMS (gross market sales) is generated from an organic marketing channel. That is, in CY2014, 93% of site traffic came from direct, organic and email traffic sources (6% from email), with only 7% from paid traffic.

The majority of Etsy's GMS is generated from repeat purchases. Incredibly, in 2014, 78% of purchases were from repeat customers. If a business is driven by paid marketing - this KPI would typicaly by flipped, in that 78% of customers in a given year would be first time customers.

Both show very high growth but only one is defensible.

Don't build a product without validation  

Trevor Owens:

There's a pervasive, logical fallacy out there in startup land. Propagated by a Steve Jobs quote and entrepreneurs in denial, it is the fallacy that customers don't know what they want until you show it to them. Of course, the mass market doesn't know what it wants until you show them, but early adopters do. Logically, they must know.

A good point worth making more than once: if you are convinced that your idea is evidently brilliant, but you can't get any customer validation for it, you are wrong.

Going into denial, failing to accept that you're wrong, won't make you right: it'll just make you poorer. Having a vision is essential. Having tunnel vision is deadly.

It is important to get some market validation for your ideas, especially if you think they don't need validation, because they're obviously valid: that's the time when you're most in danger of getting it all wrong and flattening yourself on the ground like an egg fallen off a high shelf.

Productised services: #3: The best of both worlds

So, finally we come to this third option which, I believe, presents features of both. Product companies were covered here and services companies were covered here.

The third alternative: productised services

First of all, what is a productised service? It's a service which you've systematised and supported by tools, automation, processes, etc, so that you've decoupled the benefit given to the client from the amount of time spent on your side. In other words, whereas in a services company the ratio of X units of time for Y units of income is relatively fixed, in a productised service, X/Y can be all over the place. Some clients will be extremely profitable, and others less so (but still worth serving - otherwise, turn them away, of course).

Accounting services are a great example of productised services. Though many accountants will charge for time above and beyond their "standard service", most of them have packaged things like "yearly accounts" or "VAT returns" into a fixed price deal. This leaves them free to optimise the delivery of those services so that they take a minimum amount of time, while still charging the client the same amount.

Even large consulting companies, like Accenture, try to productise their services. Back when I was there, Accenture was very keen to sell what they called "Managed services", where they would take over an entire function of the business and deliver it for a fixed price, enabling them to manage the costs internally and deliver the service in an efficient way without undercutting their own revenues.

Productised services don't have to, and in many cases, shouldn't, be marketed as such, or else clients may try and push down your prices if they think it doesn't take you that long to deliver (conveniently forgetting the time it's taken you to systematise the service so it can be delivered more efficiently). "But you're getting a lot of value out of our service" doesn't always work, especially not with smaller companies, so think carefully before marketing your productised service as such.

Productised services have a number of advantages. Similarly to products, they can scale much more easily than services. Once a service is properly systematised, it is easier to actually carry out, which makes recruitment much easier, since you don't need your people to be as highly skilled. You won't be able to deal with a sudden million orders, but you can ramp up capacity pretty damn quickly if you need to.

Like products, the margins can also be quite high, because most of the time-consuming parts of the service have been automated or simplified so that the human time spent is small compared to the return. Unlike products, however, the process doesn't move along without human involvement, which means you have to keep working on it - but you can structure productised services so that there is a recurring component, which provides similar benefits.

Since this is a service (and perceived as such), people naturally understand the value of it and are willing to pay real amounts of money (in the thousands or tens of thousands) which they would not be likely to throw into a product by a small company.

Because it is a service, unfortunately, you must do the sales directly - it is difficult to sell services without any salespeople. However, the advantage is that you can tailor your pricing to the type of client, and how much value your productised service brings them. If your service will provide £100k of value to one client and £1m of value to another, it stands to reason that your proposal for the second client will have a markedly higher price tag than the first (which might be based on a percentage, or some other calculation method). This is difficult to achieve with most typical startup products, since you often don't know who you're selling to until too late.

Finally, another advantage of productised services over both products and services is that they can be taken in either direction if needed. If customers start to require a lot of bespoke work, you can evolve towards a normal service model. If, on the contrary, the customer base just keeps growing, you can automate more and more of the service until it becomes self-service. This makes productised services a great way to kick off a product business, by generating these product-related revenues early on and using them to continue building out the self-service aspects of the product (in effect cannibalising your own service with your product).

Productised services are not good at all stages of a company. Google could not and should not run AdWords as a productised service, for example. At that scale, you need maximum automation. But they could have done so in the early days of AdWords. Nor are they always possible in the very early stages, before you have any idea what your market wants (but then, why are you starting a business in that industry?).

I'll address the paths to a productised service, from either a product or a service, in later articles, but hopefully in this article I've made the case for why there is a third model, which sits in between products and services, and which should be worthy of your consideration when trying to figure out how the hell you'll get your company off the ground, particularly if you're a new entrepreneur and are taking my advice to stay away from investment until you have your basic business skills figured out.


How to choose a cofounder  

Excellent article by Elad Gil, outlining many points that are worth thinking about before deciding to work with someone. As I've mentioned in an earlier article, starting up with someone else can be fraught with peril, particularly if they're a friend. Together with my article, this checklist of questions could save you a lot of pain.

Here are the high-level points, but please read the full article to get the substance:

Key criteria for selecting a cofounder:

  1. Ability to communicate with each other. Can you have an honest and frank conversation with your cofounder?
  2. Alignment on key questions. What are their objectives? Why a startup? What do they care about in company culture? Who do they want to hire? How do they view investors? How ethical are they? What is your role versus theirs?

Elad also points out that you should be clear about who's in charge, or else your disagreements will freeze the company, that you should avoid starting up with someone with strongly overlapping skills, and that it's a big bonus to have known them for a few years and even worked together before.

Time management for startups  

HackFwd offers some essential tips for time management when you're a startup founder:

  1. Know the difference between busy and productive: it doesn't matter if you're working hard, if that works won't be delivering results for your business.
  2. Know the value of your time: as an entrepreneur, you have the freedom to outsource time-consuming work that needs to be done but doesn't bring much value to your business. Use that freedom.
  3. Organise your contacts and calendar: this seems like the weaker advice on the list. I can't think of many cases where spending time organising your contacts is time well spent for a startup founder!
  4. Recognise your rhythms: Instead of assuming that every hour is equal, be aware that you have daily rhythms which mean that some hours each day will be more productive than others. Spend the productive, clear-minded hours on things that need them, and keep mindless tasks for mindless hours.
  5. "Scheduled maintenance": Everyone needs to recharge from time to time! Take holidays. I'd expand that to weekends, too - working 7 days a week every week will eventually burn you out.

Apart from number 3, those are all great tips. Full article here.

Work hard and get lucky  

Classic point and inspirational post, by Mark Suster, about luck and hard work:

Rapid success stories happen, true. But the reality is that most "overnight successes" come at the end of years of hard work and those witnessing the "success" part too readily assume the "overnight part."

(...)

Nothing comes easy. There are few overnight successes in life. The best companies struggle - just not publicly. And the harder we work, the luckier we get.

Do you really get luckier the harder you work? I can think of a few cases where working hard won't lead to luck (for example, if you're working on the wrong thing).

But the right kind of work on the right kind of thing will multiply the opportunities that come your way. If you are able to spot those opportunities, it will feel like things are moving your way. Couple that with better experience seizing those opportunities, and you have so-called "luck".

I'm a firm believer that we are all surrounded by countless opportunities to "get lucky" to a practically miraculous level. But we are blind to most of those opportunities and, even when we see them, we fail to capitalise on them. Feeding your mind with interesting things will teach you how to spot opportunities. Doing certain things (for me, for example, blogging) will multiply the opportunities that come your way. Finally, working hard will teach you how to seize the opportunities effectively.

Be sure to do all three.

Should you pay to pitch your startup?  

BetaBeat's Adrianne Jeffries:

So how much is too much? "I've always been curious as to why people think pitching should be free," Ultra Light Startups founder Graham Lawlor wrote in an email. "I think each event is unique and startups should evaluate paying to pitch as an investment, alongside their decision of which lawyer or web host to use. I like to believe startups that pitch at Ultra Light get far more than $50 worth of value in exposure and feedback (and sometimes prizes). I suspect the people who think pitching should be $0 are not running many events themselves."

I have no problem, in theory, with companies paying to present at an event. However, let's call that what it is: it's a promotional presentation. Presenting it as "pitching", i.e. as an activity directed at investors for the purpose of getting funding, is misleading at best, and downright dishonest in some cases.

Promotional presentations shouldn't be free. Pitching should. Patrick McKenzie puts it best on HN:

It's a sign that you're entering hugely, hugely seedy territory if you ever are asked to pay to receive offers of employment, scholarships, or investment. First, many out-and-out scams operate that way. Second, if the opportunity were legitimate, there is an adverse selection risk. Meritorious candidates for employment/scholarships/investment have no interest in paying to get a chance at them, so those candidates would avoid that opportunity like the plague. The decisionmaker, if they have two brain cells to rub together, knows this and charges anyway. Why would you ever take investment from someone who had a declared policy of only entertaining pitches from the bottom of the barrel? (Plus, egads, what does that say about you to follow-on investors or other parties you need to sell?)

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