daily articles for founders

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

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.

Startups can't afford a cover-up culture  

Following on last week's point about not drinking your own kool-aid, here's an article by Steve Blank about the dangers of a cover-up culture in startups:

[My investors] reminded me that failures in startups tell the founders which direction not to pursue - while teaching you how to succeed. This means covering up failure in a startup [is] like tossing their money in the street. So instead of a cover-up culture they encouraged a "Lessons Learned culture."

A key element of a "Lessons Learned" culture is rapid dissemination of information. All information, whether good or bad, must be shared rapidly. We taught our company that understanding sales losses were more important than understanding sales wins; understanding why a competitor's products were better was more important than rationalizing ways in which ours were superior.

Why most VCs give bad advice  

Kamal Hassan:

To sum up, venture capitalists:

  • know less about the business than the entrepreneur
  • often have limited experience in the industry and in running businesses
  • often feel that they know better (their environment encourages it)
  • can fire the entrepreneur, so their ‘advice' carries too much weight
  • have a different share class so have different incentives
  • are on a fixed timeline that may impose looming deadlines
  • are biased to take action if things seem to be going poorly

Advice is a dangerous beast. Advice from the wrong context pushed overly forcefully can easily damage or even destroy your business.

As an entrepreneur, it is your responsibiity to:

1) understand the context that the advice is being given from; is that context actually relevant to the advice being given? 2) translate it to your own context; how much of the advice can reasonably translate to your potentially very different context? 3) decide how and whether to apply the advice, if any is useful at all.

It's your business and your life. Only you can make the call on whether the advice makes sense. Any situation where you have no choice but to disable your critical thinking and take someone's advice anyway should be avoided like the plague - whether or not you're going down the funded vs bootstrapped route.

I've heard some pretty horrendous advice given to startup founders by people who sounded like they knew what they were talking about. One startup I advised recently was being told by one of their "advisors" that a transactional business model, for what they were doing, was impossible, so they were going for a subscription model instead. I know several businesses using transactional models in similar contexts, so I was able to undo that bad advice, but ultimately there's only one defence against bad advice: think and make up your own mind.

Email-first startups  

Ryan Hoover:

Email-first enables startups to:

  • Validate ideas quickly [...]
  • Fake it ‘til you make it [...]
  • Force focus [...]
  • Create habits [...]
  • Be ubiquitous [...]
  • Transfer to other mediums [...]

Very good points. Ryan goes on to point out several examples of email-first startups.

For what it's worth, GrantTree is currently paying £2k a month for a startup that still has no web page. They do have a daily email that is well worth the money, though. Do I care that they don't have a website? Nope. Would I pay any more if they did? Nope.

A moral obligation to society?  

Burak Kanber:

Is that fair? Is that a decision I'm morally allowed to make? I have the skills to help other people out but instead I'm running a startup and writing on my blog. Should I feel guilty? Do I have a moral obligation to use my engineering skills to give back to the world in a bigger way?

This is a question that I have grappled with a number of times. Some people will feel this is irrelevant and doesn't matter. Others will feel that the entire point of entrepreneurship is precisely to control how you give back to society, and be able to ensure you contribute something worthwhile.

After much consideration, I lean towards the latter camp. Running my own business has enabled me to be so much more effective and "direct" in the way that I give back to society. As an employee of a business, most of your contribution will be through taxes. As a business owners, you will probably end up doing your best to reduce these taxes, but suddenly many opportunities will open to contribute back to society in meaningful, tangible way.

Whether those opportunities consist of teaching others who to become entrepreneurs themselves, or building a useful product, or helping other entrepreneurs build useful products, or advising people, or providing them with resources, or even the simple task of deciding to hire someone who deserves a chance and would otherwise not get that chance, opportunities for entrepreneurs to give back abound.

The more successful you become as an entrepreneur, the greater your leverage becomes, and therefore the more impact you can have on the world around you. A broke founder of an early software startup has little chance to contribute meaningfully to the world's big problems. Meanwhile, a highly successful entrepreneur like Bill Gates can influence heads of state and pour vast amounts of money into an attempt to eradicate Malaria.

I say keep doing what you love, get rich doing so (if you can), and keep an eye out for opportunities to align doing good for the world and doing good for you. After all, successful people focus on building more success, not on self-sacrifice.

What font should I use?  

Design is an essential part of most successful startups. Having some, even relatively basic, design skills is useful in many areas of business.

Dixit Smashing Magazine:

Over the last six months or so we've been trying very hard to improve the overall quality of the articles published on Smashing Magazine. One of the improvements we introduced is the so-called 'Smashing Magazine Experts Panel' where our articles are reviewed by experts (who are invited and paid for their reviews) before these articles get published online. There are also other things we do to ensure the good quality of the articles. We want to be a professional, reliable online publication for designers and web-developers.

It shows in this article. Excellent overview of key principles for picking fonts. Here's a summary, but do read the article.

  • Use appropriate fonts. Don't go for individuality above all else.
  • Know the font families: Geometric, Humanist, Old style, Transitional, Modern, Slab Serif.
  • Use decisive contrast, fonts that look significantly different. Either keep it exactly the same, or change it a lot.
  • Don't over-use particularly stylised fonts.
  • Break any of these rules sooner than design something truly barbarous
How not to recruit cofounders  

Like many other technical people with startup experience, Tristan Kromer gets approached by non-technical founders and is tired of people making basic mistakes in their pitch to him. Here's his list of don't's when approaching a technical cofounder:

  • Don't bullshit. If you don't know, say so.
  • Have more than an idea to offer.
  • Don't ask for an NDA.
  • Be clear. If you can't be clear even this early in the relationship, working with you will be a hassle.
  • Show that you can do it by yourself.
  • Know your metrics.
  • Don't make up words to describe your way of working.
  • Don't negotiate about share percentages.

The last point is interesting:

If you offer me 1% of the equity, I'll do 1% of the work. If you offer me 25% percent, I'll do 25%. If you offer me 60%, I'll insist on only taking 25% and I'll work 24/7 for you.

It's a bit tongue-in-cheek, but makes the point that if you're arguing about percentage points already this early in the startup, chances are the relationship will struggle. If you want to encourage loyalty, err towards generosity (but only with committed cofounders).

How to create your own video  

On the one hand, this article underestimates the tremendous effort required to put together a good video, especially if you're not a visually talented person (i.e. someone who can scribble stuff and make it look good). On the other hand, Woobius managed to put a number of videos that looked fairly professional, all on a zero budget (see here and here and here), so it certainly is possible.

If you have access to someone (a cofounder or even simply a friend) who is visually talented, this article can take away some of the mystery of putting together a video for your product. Since videos do tend to increase conversion, this may well be worth doing.

I'd say there are two points in a startup's life where it makes sense to throw together your own video. One is before coding anything, as part of a "video MVP" to test the market. There, it's really important not to invest too much time in the video, since it's really just a simple test of the market demand.

The other point is when you've got a website up, and you're trying to increase conversion rates. There, it makes sense to invest a bit more time into the video, but you may still be at a stage where cash is tight and you don't want to spend thousands of dollars on a "proper" video, especially if you don't know whether it'll actually help conversions in your case.

Later on, when you have the financial resources, hiring professionals to put the video together is a better option.

3 Lessons from launching a product  

No completely new advice in this article, but a very good point about design/usability of your first version:

However, your first design shouldn't matter. You should be solving such a huge need that users and customers will do anything to use your product to solve their needs. When your hair is on fire, the look of the firehose doesn't really matter.

If poor usability or bland visual effects push away early adopters, then you haven't actually solved an important problem (at which time you pivot).

As Sean mentions earlier, though:

Not all advice is created equal (...) If the advice doesn't sit well with you, don't blindly follow it

Not all startups are created equal. Not all startups are solving a hair-on-fire problem. Twitter, which he uses as an example later in the article, certainly did not solve any critical problem initially.

How to: deal with your Corporation Tax (UK)

Following on the success of last saturday's post about how to register a business in the UK, I've decided to switch the "simple and practical How-to" to Friday. So, today, let's look at how to make sure you don't fail at Corporation Tax and end up with big fines, in jail, or worse: barred from running a company again.

My experience of the matter is both as an observer - seeing how others do it - and personally, both succeeding and failing at actually getting this right.

1. Make sure you understand Corporation Tax

The biggest problem with all these accounting concepts is that because they sound like accounting, people think an accountant should handle them, and they don't want to learn about them. That's a mistake. First of all, unless you're doing some very complicated stuff (in which case you should have a competent accountant or CFO advising you), CT (and VAT and PAYE) are simple. They're a pain in the ass, but they're simple.

Effectively, Corporation Tax is all about profits. The UK government taxes you based on... well, everything they can, and one of the obvious numbers to tax is your profit. Whether that's the right approach or not might be debated, but it's the reality.

Let's say your turnover is £100k (meaning you are taking in £100k of revenues each year), and out of that you're paying £50k of costs. That makes your "taxable profit" £50k. At a CT rate of 20%, your "tax burden", as accountants like to call it, is £10k. That's it. That's how you calculate CT, fundamentally. Profit x tax rate = CT liability.

2. The Corporation Tax rate

Is the tax rate 20%? It depends on your size and the year we're talking about. The full rates are listed here. If your profit is less than £300k, which is likely to be the case if you're reading this article, your rate is just a straight 20%. If it's above £300k, then it progressively rises to 26% - but this upper level is dropping each year.

You can get the rate to be effectively lower, by using various tax breaks... but we'll get back to that later.

3. What about losses?

If you're not making any profit, then you don't have to pay any Corporation Tax. In fact, any losses you make this year can be offset against future years.

So, if you made a £50k loss last year, and you make a £50k profit this year, you can offset last year's loss against this year and not pay any CT this year either. Such losses can be carried over from year to year until you've used them up.

4. Keeping track of expenses

The main difficulty that any new entrepreneur faces with respect to correctly calculating their CT is simply keeping track of all the expenses. This is the kind of thing that really hurts if you don't do it properly right away, particularly if your business is quite active.

Unless you're only planning to have a few dozen transactions per year (which was the case for one of my businesses), keeping track of expenses can become a nightmare. One of the reasons for that is that you not only need to keep track of the numbers, but also the receipts.

HMRC generally states that it takes a "lenient" approach investigating small businesses. They understand that small businesses often don't have the right systems and advice in place to do their taxes perfectly, so as long as you look competent enough and you don't seem to be defrauding them, they will probably not be bothered about small mistakes here or there. However, if your accounts are a total mess and it shows (for example because amounts don't add up), you will draw attention that could end up costing you a hell of a lot of stress and time.

Having tried both manual and automated expense systems, I come strongly in favour of the latter. I use FreeAgent (referral link included), because the interface is simple and easy to use, it automatically generates all the tax reports I need, and it keeps track of receipts in the system itself. Other alternative systems I looked at were KashFlow and Xero. In this day and age, I would not consider offline accounting systems, or even uber-complicated ancient relics like Sage, to be appropriate for a small business.

We'll cover how to classify expenses, and how to systematise expense-tracking so it's not a nightmare chore, in a later article, but for now, it's enough to say that you should keep track of all your business expenses in whatever system it is you choose, so that you can:

  • accurately calculate your profit for the year; and
  • justify the calculations if HMRC asks - including being able to produce receipts (electronic or paper) if asked.

5. Filing the Corporation Tax return

The first thing to note about Corporation Tax is that it is only due 9 months after the end of your financial year. You may decide to file it earlier (for example to collect some tax credits), but you don't have to. So, as long as you keep records properly, you don't need to worry much about CT for the first 18 months or so of your business.

Then again, you won't know if your records are proper until you start using them (for example to get your CT filed). So it might be worth filing a bit earlier, especially if you're unprofitable anyway, to properly "test" your expense-keeping system, and make adjustments if you find it wanting.

The form which you're looking to file is called CT600. It can be downloaded from HMRC's website after you log in and "Enroll for Corporation Tax online". This, like all of HMRC's online processes, takes a while, so don't leave it to the last minute.

In an ideal world, HMRC would have a nice, secure online form. And that's what they claim they have. The reality is, HMRC's so-called "Online filing facility" is a gargantuan PDF file that can only be opened with Adobe Acrobat Reader and which takes a whopping 15 seconds to open up on a Macbook Air (Adobe Photoshop takes less than 5 seconds), and which you'll need to set up custom SSL certificates for. It's insane, it's stupid, it's the way HMRC decided to make your life harder. That doesn't mean you should pay an accountant £1,000 just to handle Adobe Acrobat Reader for you and fill in some fields.

If you're using something like FreeAgent for your accounting, you should be able to generate all the key figures via one of the reports there, and just fill them into the form, and hit submit. It will still take you an hour or two because Acrobat Reader is so slow, but it's a pretty straightforward process.

It's worth adding that you can (and should) also submit your accounts via the same PDF (and various other attachments), but we'll cover accounts in another article.

6. What if I'm late? What if I can't afford to pay?

If you're a little bit late in filing, ok. But don't wait any longer! If you're very late, HMRC will fine you, with the fines growing if you keep ignoring them.

You should always be able to pay, because if you use a proper accounting system and keep it up to date, it will tell you how much you're going to owe to HMRC at any point, and you can make sure not to touch that money. I like to put it in a separate account so it can't be spent (I do the same for VAT).

If you can't afford to pay because you screwed up your cash flow (I've been there and done that, before I learned better), then what you should not do is ignore the problem and hope it will go away. Pick up the phone and ring up the number on those HMRC reminder letters. Your mileage may vary, but in my experience, so long as you make a case for why you can't pay now (even if it's basically your fault) but you will be able to pay as soon as such-and-such invoices are paid to you, they will take a lenient attitude. I think the general idea is they have no interest in forcing you into bankruptcy if there's a reasonable chance that you will pay. They'd rather have the money. Try not to do this every year, though. Also, if you're reading this from another country, don't count on this leniency. I hear that Holland is more "fuck you, pay me", for example.

That's it for today. I hope you find this as useful as the previous article.

The series so far:

1. How to register a company in the UK

2. How to: deal with your Corporation Tax (UK)

3. How to: track your expenses (UK)