Before you take the plunge
From time to time, I catch up with ex-colleagues in the corporate world and the typical reaction when I talk about working on a startup is “wow” or “must be great being your own boss!”. You know what? Yes it is nice and rewarding…but building a startup is hard. Really really hard.
Given the economy, lots of corporate people are taking the plunge and trying their hand at a startup – which I think is fantastic. I believe that is the only way for us to get out of this recession, we have to invent our way out of it. See Friedman’s article in the times about this here. But I digress…
I started thinking about how difficult the transition was for me and I thought I would share my tips for others who might want to make the jump. So if you are considering taking the plunge (and I hope most people do), do it – with your eyes open.
My top tips:
- Prepare to roll up your sleeves: Don’t expect an analyst to do your dirty work – you ARE the analyst…and the manager and the secretary. Fact is most of the work at a startup is detailed, tedious and not glamorous. Put away Powerpoint and Word. You may be a Powerpoint or Word/Excel stud, but those skills are not relevant. Pick up skills that will actually help build your product idea. If you work for a software or web startup and have no programming experience, pick up a HTML and CSS book (or take online training). Whatever the tools are to build your product, take the time to roll up your sleeves and learn them. Even if you hire someone to do it, you’ll be glad you put the time into this as you’ll be able to manage them better.
- Get close to the customer: Unless you are in sales, your ‘customer muscles’ have probably atrophied. Sitting inside a large corporate machine sometimes makes it easy to get caught up in your spreadsheet or your specific project. Take a sales class, volunteer for a sales role at your company or just ask your boss if you can go out and meet real customers. Learning how to reach out to, listen and pitch customers will be a huge asset when you finally take the plunge. You need to get used to pitching because you will always be looking for employees, customers, investors, partners. Only 2 things matter in startups – customers and products. Which brings me to my next tip.
- Re-learn product development: You will be part of the product development team no matter what your title or role. You should forget the corporate way to build products (conduct focus groups, put together a detailed business case, document requirements, develop detailed workplan, etc). You will run out of money before you launch. Instead, work in fast iterations. Build an alpha version and launch to a select group of users. Then listen closely..and repeat. Most of the mistakes I’ve made are in this area – so I’ll point you to some real experts. Read Getting Real from 37 Signals, and follow the blogs of Steve Blank and Eric Ries.
- Figure out social media: Most corporate people have used Sharepoint or other Enterprise ‘collaboration’ tools, but social media is different. Done correctly, it can expand your network and your learning. You need to be on LinkedIn, Twitter, follow blogs, etc. And not just read (or retweet) but actually be part of the conversation and contribute. A workshop may teach you about Social Media…but I recommend just to jump in and do it. And start your own blog (that is a learning experience in of itself)! If you want a book recommendation on this topic, read Cluetrain Manifesto.
- Re-learn Communication: Email does not equal communication. Phone, Instant Messaging, Social Media are the preferred modes of communication. “Be brief, be direct and be gone!” That was a favorite saying of an old boss, but is very appropriate for startups. Everyone has a full plate and you are fighting for survival everyday….forget about long ‘CYA’ emails or ‘he said, she said’ emails. And lose the buzzwords, no one cares about ’strategy or core competency’. There literally is no time for that. Worrying about office politics or bureaucracy takes away from the real focus – customers and products.
- Be Cheap! Really cheap. You are probably used to staying at nice hotels and receiving per diems. Forget that. If you are not ready to give up some of your lifestyle, you are not ready for a startup. Every dollar you spend related to your business should be scrutinized. If it doesn’t directly lead to customers, think twice before you do it. If you are an aspiring founder, adopt a cheap lifestyle BEFORE you leave your cushy job and save as much $$ as you can. Getting your alpha product launched without worrying about chasing financing is a huge advantage.
- Be careful hiring your corporate friends: Unless they have direct skills in either building your product or finding customers, tread carefully. Even have they have the skills, committing to a startup lifestyle is a big change. Many will not be able to make this transition. That doesn’t make them bad or inferior people (you can still be friends with them!) but be realistic and understand that its not for everyone. At the same time, if you have worked with someone directly, know their talents intimately and believe they are hungry and can make the transition, by all means bring them on board.
- Park your ego: This one is for the middle/senior managers out there. The worst thing you can do is say to yourself: “I used to manage X amount of people and was responsible for a $Y budget…and now I’m doing HTML”. Its not about how many people you manage, or the how much money you can spend – it is only about customers and products.
There is no doubt that there is risk in making the transition from a corporation to a startup and many people will struggle. However, if you are passionate about creating something new and solving a problem in the market, there is no more exhilarating, intense and learning experience that I know of.
Hope this helps and let me know your thoughts in the comments. God speed!
Make your customers feel like stars
There is a great discussion over on Fred Wilson’s blog on what leads to consumers adopting new technologies.
Fred highlights these technologies to help answer this question:
iPhone – mobile browser with a killer touch screen interface
Facebook – a social net with real utility
Wii – gesture based user interface for gaming
Hulu – your favorite TV shows in a fantastic web UI
FlipCam – a video cam that fits in your pocket comfortably
Rock Band – everyone can be a rock star for a few minutes
Mafia Wars – a natively social game built for social nets
Blogger – a printing press for everyone
Pandora – drop dead simple personalized radio
Twitter – blogging everyone can do in less than a minute
You can read all the great comments on the post, but many emphasized usefulness, sexy, simplicity, sociability, purpose and visibility to others
Fred’s view is:
So it seems to me that consumers are driven to new experiences that are simple and useful and/or entertaining. It is not enough to be the first to market with a new technology. You have to be the first to market with a version of the technology that is simple and easy to use.
I believe deep down inside we are all self-centered, insecure and want to be ’stars’. Most or all of these consumer technologies meet these human needs:
Twitter: How cool is it to see your username and all your tweets? better when someone else refers to your tweets.
Wii: Lets us imagine we are that awesome tennis player or golfer we always wanted to be
Pandora: Music just for ME…because I am ’special’ – same goes for Hulu, TV just for ME
Facebook: My friends can see all my photos, what I’ve been up to..and I can expand my friend circle
Rockband: We can be a [rock]star!
Compare this experience to installing a new printer driver on windows. Did that make you feel like a star? Didn’t think so…quite the opposite.
So, takeaway for me is make your customers feel special…like they are a star, and you’ll win them over. Kind of obvious but important.
How to pick the right incorporation structure
One of the major early decisions founders have to make is selecting the right incorporation structure. As I found out pretty quickly, this is not a simple decision. While there are only 3 choices (C-Corp, S-Corp and LLC), the number of exception cases and ‘If/thens’ were making my head spin so I decided to simplify the decision. A picture is worth 1000 words so here goes:
C-corp, S-corp or LLC
Caveat: This is obviously a simplification and cannot possibly accommodate all of the various scenarios out there. Thus, this is informational only (I am not a lawyer) and you should consult your accountant and/or attorney to discuss what is best for you.
The advantages of simplifying are so startups can focus on a few important questions to make this decision. Turns out most of the questions revolve around financing and operating flexibility.
- Are you raising VC or Angel financing? If you’ve already decided that you’ll need equity financing from professional investors then your best bet is to go with a C-Corp. This gives you the most ownership flexibility (no limit on shareholders, multiple classes of shares, etc). From what I gather, most VCs will insist on this structure
- Not sure and want to keep all of your options open? The S-Corp allows you to minimize taxes and easily convert to a C-Corp in the future if you do end up raising money. Think carefully about whether you want to raise money as there are a whole set of other implications (that’s material for another post though). Note; the vast majority of startups are actually bootstrapped or funded by friends/family.
- Do you want to bootstrap or build a lifestyle business with minimal operating formality? Then an LLC is probably the best structure as it allows you to minimize your tax burden and has no formal operating requirements such as quarterly board meetings and filing annual reports. However, if you change your mind and want to raise money than it will be more difficult and expensive (relative to a S-corp), but not impossible to convert to a C-Corp.
There are a ton of great resources out on the web on this topic. Here are the ones I found useful:
- Post by Startup Company Lawyer. Good overview of the different entities comparing taxation, ownership and other criteria
- Simple overview spreadsheet by Legalzoom
- NextNY discussion on S-corp vs C-corp
- How to choose right legal structure – article by Inc magazine
Hope this helps clarify the decision for some of you. You are taking enough business risk with your startup, there is no need to add additional risk/complexity by choosing the wrong incorporation structure.
I would love to hear how other founders made this decision and any feedback on the above. Now back to actually building a business.
MIA
Yes, I have been M.I.A (Missing In Action)! So many excuses..let’s see, there were the olympics, then the election and so on.
Where have all the bootstrappers gone?
Sramana Mitra wrote a great article on Forbes asking why there aren’t more bootstrappers. And asserting that bootstrappers can help America out of our current economic funk.
She raises an important question – Why don’t we have more bootstrappers? Why are so many entrepreneurs interested in raising VC funds – especially for ultra-light web startups that don’t require a ton of capital?
One issue is bootstrapping is just not sexy. It takes many years to grow your company. You have to grind out revenues with meager funding from friends and family…all while eating PB&J sandwiches. Its much more sexy to say I have raised $X millions from well known VC firm while you cater in tuna tar tare into your trendy loft office space…right?
If so, then its a marketing problem. We need to make bootstrapping more sexy. Borrowing from the current Organic/Green hype – maybe the new term should be ‘The Natural Entrepreneur’ – no preservatives added. Think about it – slow food, grow your own, reduce waste, maximize your resources, minimize the impact on earth. All of this is the opposite of the grow fast, raise millions, hit the home run or go home crowd.
OK, more seriously though, I think there are three parts of the solution to this issue:
- The media (both mainstream and blogs) needs to talk more about the everyday heroes who grew their companies slowly (or naturally)…as opposed to the current fascination with being the next Google. All the young budding entrepreneurs out there need to hear about these heroes as much as we hear about the guys and gals who hit the home runs and now worry where they are going to park their new jet.
- Schools and Universities need to teach entrepreneurship as a real career option, not as a ‘roll the dice and you might get rich’ education. I think some schools have figured this out, we need more. Entrepreneurship is a teachable skill. Just like any other subject, some people are better at it than others, but the skills can be taught and learned.
- Most importantly, Government needs to more actively support the bootstrappers with funds, incubator office space, tax credits, legal help, etc.
Clearly, lots more needs to be thought through with the above solutions and I plan on posting more on these topics. And what role should VCs have? Hey, someone has to fund the hundreds of millions for the large scale solar, wind and bio-mass plants that we need!
So next time someone asks you how much VC money you are raising – just say “nah man, I’m doing it Naturally”.
Update 8/31: Looks like there are others who believe too many entrepreneurs and VCs are chasing short-term money as opposed to looking to build long-term successful companies. Judy Estrin is a serial entrepreneur who thinks Silicon Valley is in trouble because of this mindset. Read her article in the NY times here.
Heard of the Slow food movement? Maybe we should start talking about the ‘Slow Revenue Movement’…
NY Times does video right
Take a look at the NY Times video of Hillary Clinton’s DNC speech: http://tinyurl.com/6gf9am
This is how to do video on the web: A full transcript that is clickable and as well as sections that let the user click their way to watching the most interesting parts of the speech.
I like this because I can read much faster than Hillary can talk – so I can go right to the parts of the speech that I want to listen too…while still scanning the rest of the speech.
This is a great example of how the interactivity of video on the web beats the passive experience of normal television…well, except when you are watching The Matrix on a 42″ plasma with surround sound.
The end result – I spent 13 minutes watching a 22 minute video.
Citigroup gets green cred
More data to support that going green is not only good for a firm’s expenses, it’s also a great way to gain [green] credibility from your customers.
I recently switched to paperless statements on my citigroup credit card (I know I should have done this months ago), and this is the message Citigroup sent back to me after I made the change:
XXXX-XXXX-XXXX-5897
Thanks for going paperless. Citi will plant a tree on your behalf.
That is how you get your customers to love you and be environmentally friendly at the same time. I essentially get zero bills through the mail now – its simplified my life and it feels good to do something for the planet.
This is a no brainer. Why aren’t all firms doing this?
Case in point – I get large amounts of paper from hotel and airline frequent stayer/flier programs. Typically they also email me the same information! Duh. Send the email, stop the paper.
Now if only Citigroup can do something about boosting their stock price…
Which business are you in?
One of the bad habits you pick up when you spend too much time in meetings as opposed to doing work is speaking management jargon. Have you ever found yourself saying ‘Core competencies’ or ’synergies’?
Management gurus constantly tell us to focus on our core competencies and outsource the rest. While I think this certainly has merit, as with anything, there are plenty of data points to support the other argument. E.g. Apple has been very successful controlling all aspects of their design and manufacturing process. They also famously shut down their outsourcing center in India and brought those functions in house.
But there is a valid question here – which business are you really in? Is Starbucks in the coffee business or in the retail music business? Incidentally, they recently stopped selling music in their stores to focus on coffee and service.
I’ve been thinking about this question ever since I’ve been going to this barber shop in Manhattan’s East Village. Let me explain. Take a look at this picture…
Watch battery or haircut?
Are they in the hair cutting business? Or the watch battery business?
One one hand, I can imagine the management gurus saying – You have to diversify your revenue stream! Innovate new products! Other gurus will say – focus on your core competency!
Its also not hard to understand the rationale of the owner of a small business – I have this skill, why not provide this extra service? Even if I change one battery a week, that’s extra revenue I didn’t have before. What do I have to lose?
To me, this is the critical question. I would argue that there IS something to lose – namely, new customers. I’ve been getting my haircut here for over 2 years and love the service. Its quick, decent quality and costs $10. But I remember thinking during my first visit – these guys can’t be that great if they have to sell watch batteries to supplement their hair cutting business. I decided to take a leap of faith and am happy I did. But how many potential customers walk by, look at the above sign and decide to pass? Since in 2 years I have never seen anyone bring their watch here to change their battery, I’m willing to guess they are losing more potential hair cutting customers [because of the sign] than gaining new watch battery customers. So, there is in fact something to lose!
If you think about it, we are constantly hedging our decisions. We get a double major because we don’t want to choose one over another. We buy a printer that prints, scans and faxes just in case we want to do all three. Making tradeoffs are difficult because it forces us to give up the potential value from the other option…even though we may seldom exercise the other option.
So, I think the lessons for entrepreneurs and all businesses are:
- Focus on selling products services that will make you world class in that space
- Providing multiple differentiated products/services may negatively impact your brand. If new products are sufficiently different from your core business, think about creating a new brand (and the cost of creating a new brand should be part of the business case)
- We all have a finite amount of time, and thus are limited to how wide we can spread our efforts
So, to my friend who owns the barber shop I recommend getting out of the watch battery business. At the very least, remove it from the main sign. And focus on cutting hair. By the way, get some new magazines too!
