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daily articles for founders

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

The terrible costs of patents  

I've argued before that patents aren't much good for entrepreneurs.

Here's Erick Schonfeld's view on whether they're good for large corporations:

Google is paying $12.5 billion for Motorola largely for its huge mobile patent portfolio. In July, an anti-Google consortium ponied up $4.5 billion Nortel's patents (and they overpayed). Interdigital, Kodak, and others are looking to sell their patent portfolios. We are in the middle of a patent bubble.

If you think about the cost of these patents, technology companies are spending billions of dollars on assets which they need primarily to defend themselves against the rising tide of patent litigation. Those are billions of dollars that Google, Apple, Microsoft and others won't invest in new products, new jobs, new facilities or other economically productive activities. And by and large, they will not use these patents to create new products. Google is doing it just to protect Android from rival patent claims.

It's hard to get a lawyer to agree that the patent system is screwed up. After all, patents generate vast amounts of work for lawyers - it must be working great, then!

It's much rarer to find a technologist that supports the patent system.

So, in short, the patent system, as it stands today, is great for lawyers who invent nothing, and terrible for people who actually invent stuff. And, of course, that makes it a bad deal for the public.

Anatomy of the long sales letter  

"Long sales letter" landing pages, such as this one, are often used in the Direct Marketing/MLM industry, because, well, they work rather well. In this article, Paras Chopra interviews copywriter Jeremy Reeves about how to put together a long form salesletter, why it works, and so on.

Question: Do you think "sophisticated" web designers lose a lot because they are not ready to embrace techniques employed by long sales letter pages?

Absolutely. In fact, I'd be willing to bet that if they started testing long-form salesletters… they'd very soon be able to buy themselves a new house.

While the long-form salesletter format has certainly proven its worth in some industries, one would do well to apply a thick layer of context to this advice. In some cases (for example, a site targeted at geeks, a long salesletter would be simply disastrous, because it conveys a certain product image that Github's market has a strong dislike for.

So, it really depends who you're selling to, and, as Paras himself would probably advise (update: he has just done so here), the solution to this is not to decide in theory which one works, but to do some testing and figure out which one converts best for your product and your market.

Regardless, here's one of several gems in the article:

Question: What are your favorite copywriting tips and techniques?

The best technique you can ever use in copy is simply understanding the dominant emotions going on inside your prospects mind at the exact moment he/she is reading your copy. If you can understand that… it paves the way for every single word on the page and the copy flows like water.

Don't let your rock stars do the customer support  

The UserVoice blog makes a good point here, that when it comes to customer support, you don't want an exceptional performance, you want a steady, reliable, friendly performance:

Here's what makes a good support person:

  1. A prompt response
  2. A friendly attitude
  3. A willingness to listen, understand, and think critically before responding

(...)

So as fun as they are, let's all stop looking for our very own Jack White and start enabling our team to make customers happy. That's what matters.

It's a reasonably point, but it's worth adding that rock stars have their uses in business too. The person who showcases your latest product in front of an audience of thousands should be a rock star, not a "prompt, friendly, listening" type.

And if you yourself are the inconsistent type who works until 8am and then doesn't answer emails for 2 days, make sure you join forces with someone more steady, rather than strangling the habits which give you your obsessive productivity.

Services vs Product business  

A strong, lengthy article from Mark Suster, explaining that successful services businesses should not all try to become product businesses just because of all they read on TechCrunch about hot product startups:

Firstly, they don't realize how hard product businesses are. They mistake their successes in selling services as a competency in selling products. This is a huge mistake. Secondly, they often ramp up their cost base to accommodate these costs, which when a down market hits they are more effed than those that stay focused. Finally, the focus on the product (envy) means that they take their eye off of their core business, which is services. So the core business suffers.

Products businesses definitely have some advantages over services businesses, at least at a small scale. Running a website that sells a product like this one is the only way to create a business that will earn you money while you're sleeping or sitting on the beach. But, as Mark points out, building a successful product requires very different business skills than building a successful services business (though the technical skills may be roughly the same).

But at scale, both types of businesses take immense amounts of hard work and luck to grow huge and sustain. Very few products businesses scale up without requiring a lot of staff. So I agree with Mark that, if you're aiming to create a large business, you shouldn't discount services as a way to get there.

Use the tools you're displacing  

This is a variant of "eat your own dog food", but with a bit more nuance to it. Rob Fitz points out:

I've made this mistake a lot. I have an idea. I ask customers if it's a problem. It is. I ask how they currently solve it. Excel? That's barbaric. A better, more specific tool could exist, so I go to work.

(...)

In every case, the mistake was discovered when I began seriously using the existing tools for that exact use case. And I usually realise: they're not so bad!

One of the questions that smart investors will often ask is: how are power users solving this problem right now? The answer is never "they're not solving it", unless it's just not a real problem. Power users will always figure out ways to contort tools, processes, people - whatever is available to them - to somehow power through the problem and get whatever it is they want done.

Ideally, you should be a power user of your product. If that's not possible, then at least you should have such a user as a close advisor or even part of the founding team. They will be the ones who sit up in the brainstorming session and point out that the entire product is unnecessary because everyone solves it with a simple excel spreadsheet at the moment.

Ring the freaking cash register  

Mark Suster, making a point I've made a few times, but explained from his point of view as a VC:

If you are a super young, well-connected, Stanford CS or EE, worked at Facebook early, have a bit o' dosh and have VCs chasing you … you are exempt. Or anybody who remotely resembles you.

Why? Because at least while the VC spigot is open and flowing for high-potential individuals that fit a pattern that some VCs seem to favor they can access cheap capital that isn't terribly dilutive and can use the to fund development and swing for the fences with limited focus on monetization.

Ok. That leaves 99.99% of you.

Mark also addresses the perverse incentives of the VC vs founders:

They are not rooting for you to fail - please don't misunderstand me on that. They would prefer you always move up-and-to-the-right. I'm just saying that great progress with no revenue and you needing more money isn't always at odds with a VC's interest. Sorry to give away the game.

Refreshing honesty. Play the VC game if you feel that's right for your business, but do so knowingly, and aware of the incentives at play there.

Use your competitors' marketing budget for your campaigns  

This article by Ilya Lichtenstein proposes a method for competing against bigger, better-funded companies:

  • You can learn from their experimentations what works best in terms of marketing message, demographics, etc, which saves you from having to run your own expensive A/B tests.
  • You can find the keywords which they're not managing well and target those.

It's worth pointing out that this is an evolving pattern. Five years ago, most companies had no clue about SEO/SEM. These days, they will hire competent firms to do this for them, and so the result will be a lot of money spent on optimising ads, often with some skill.

As a smaller competitor, you need all the help you can get. Learning from your larger competitors is a no-brainer.

7 startup post-mortems  

You can learn a lot from reading about startups that didn't work out. Kudos for the founders of these startups for sharing the experiences. Each story also includes a link to a longer version.

Don't register your idea as a company  

Me, in January 2011:

I want to start this new year with an admonition, for all those who are still working at a day job, and thinking that at some point they may want to run their own business, but who haven't decided to do so yet.

Register a business, today.

Joel Gascoigne, today::

When to incorporate is one of those topics which comes up time and time again, and there is much conflicting advice out there. I'm lucky enough to have a number of different experiences and perspectives with this, and I now believe that by far the best option in almost all cases is to delay registering a company for as long as possible.

So who's right?

Actually, both of us are, because we're talking about different things.

I advise people who are hesitating on the cusp of starting their own business to register a business right away, because this will get them over one of the biggest mental hurdles and force them into the company owner mindset.

However, there's no forced congruency between this business, which is a step towards personal freedom, and "registering a business for an idea". The business that I propose you register today, if you haven't yet, is the a business that will largely represent you. It can be used for many purposes - including as an incubator or even long-term receptacle - for ideas, but that is not its sole purposes. Registering a business for what is merely an idea with no real validation is, as Joel correctly states, not a good thing.

However, that doesn't mean you should operate without the protection of a limited company. A great many successful entrepreneurs that I know have several businesses, including one that they use for their various consulting and speaking gigs. Just because an idea starts in one business doesn't mean it needs to remain there always. As the sole shareholder, you are allowed and able to transfer the assets to a new entity as and when it makes sense - e.g. when you need to take on shareholders.

So, do register a business, but register it for you - not for an idea.

What are the best metrics?  

Andrew Chen makes an excellent point about metrics:

Metrics are merely a reflection of the product strategy that you have in place.

What you are trying to do should lead what you want to measure, not the other way around. It's for this reason that the blanket questions and answers around "best" metrics are meaningless- the question is, what are you trying to do.

It sounds obvious when stated, but it's so easy to focus on measuring metrics without understanding why you're measuring them. That being said, because most startup's goal is to increase the bottom line, there are some fundamental metrics which, when used properly, will tend to appear in almost any sensible strategy.

But, at the end of the day, the relevant metrics depend on what you're trying to figure out, what hypothesis you're trying to test:

So ultimately, the important part is to figure out what you are trying to do and what the expected behavior is around it. Only once you have that should you then ask yourself how you'd validate and test it using metrics.

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