- Introduction to Startups
- All the Same?
- A Dream Is Born
- Thoughts on Funding
- Co-Founders and Hiring
- Legal Advice
- Culture Shock
- Trailblazers and Non-Ignitors
Larry Ellison's imperative written above seems the mantra of many up and coming businesses today. With more than 600,000 ventures realized each year, startup mania has hit the business world. Aspiring to your dreams while earning a living may sound attractive but is not for the faint of heart. Very few up and coming businesses see profitability and only a select few, less than 1%, go public.
This segment zooms in on the facts of startup life, taking you from the idea to execution and the many challenges along the way. Commentary is provided by startup experts, from helpful angels to business veterans. Their advice is current, incisive and quite frequently debated, leaving you to decide who has the right idea. After all, as a startup founder, it's you that has to make the call.
What You'll Learn
- What are startups and who founds them?
- Where do the ideas for startups come from, how are they tested and when is my idea good enough to become a business?
- Techniques to start your enterprise with the minimum investment necessary and which types of business should seek financial guidance.
- The risks of starting your own business and how to prepare for them.
- How to gain momentum in a competitive marketplace.
- What big names in business have to say about start up ventures.
- Examples of a few select companies that have made it big in the startup world.
Startups are a risky business. It’s best to know the numbers before you place your bets.
- Between 1999 and 2009 VC funded about 30,000 startups. During that time there were only 568 VC backed IPOs.
- Almost 50% of startups are founded by a single person. A majority funded their ventures with personal savings while consulting on the side. Even so, those who go it alone take almost 4 times the amount of time to ramp up their products and are less likely to change roles.
- Change can be a good thing. A startup company that reevaluates its role is 2.5 times more likely to secure funds from investors and gain customers 3.6 times faster.
- In the world of startups failure means success. Well, future success. While first time business owners have an 18% chance of success, those who have owned a failed company have a 20% chance of success. If you are commencing an enterprise and have already founded a profitable company the odds are even higher at 30%.
A lot of people refer to any internet business as a startup. Others use the word to mean only those startups that work online. In fact startups take many forms, from the solo landscaper all the way to your Twitters and Myspaces. There are many ways to evaluate the differences between these companies. Preston Lee defines startups according to the type funding they receive and the amount of time founders dedicate to them. It is true that business models vary in capital and involvement, but there is much more to startups than this. Company Founder, on the other hand, focuses on the scope of the idea and its ambition. This gives a good idea of where different business ideas come from and whether you can commit the resources to realize them. While turning your lifelong past time into a profitable venture might not necessitate quitting your day job, founding a growing company will consume all your time. Startups are not just for the hyper-ambitious, though. Tim Berry combines these two views on startups skillfully, linking the typical services and products with their level of funding and commitment. Both Digg and a new local business are startups, they simply operate on different levels.
Although startups can be many things, without an idea you don't have a startup. New businesses succeed or fail based on the value of their dreams. Without any plan you can't draw customers, secure funding or even get started in the right direction.
Luckily ideas are fairly easy to come by. It doesn't have to be an earth-shattering innovation. If you have a ground breaking idea, great, but it's not a necessity. Many successful companies simply add on to other products or technology in useful ways. So how do you develop your strategy? There are many ways to go about it.
For Fracture, a company revolutionizing the way people frame their photos for display, inspiration came from experience. The founders had worked together at a nonprofit digital gallery they started while in college. During their time there they learned about the ways people like to frame and display their pictures. Seeing the framing profession ill equipped to handle the conversion of internet galleries from bits to room decor, founders Abhi Lokesh and Alex Theodre began their plan to bring images from your monitor into your living room. So began a successful business.
Rather than having a revolutionary new vision, the two used their experience and the suggestions of others for inspiration. They saw a problem with the current system and found a different way to do things. As Abhi says, "We came to realize that there had to be a better way, a more intuitive way, to get pictures off hard drives and social networks and storage sites and actually onto your walls." Sometimes it is not about creating anything new but addressing problems people didn't know they had.
The story of Sheetal Dube and her cofounders at Tetherpad is quite different. Their idea sprang from only a couple weeks of brainstorming. Under the guidance of business veterans at Women 2.0 they created the idea for a travel site aimed at professionals. Dube has plenty of advice for developing the idea for your future business. Her points are right on the money and she highlights an important fact: a company is not just a concept. Once you have a great idea you still need to plan its execution, define your goals and bounce it off other experts and potential customers. Only then will you know if your vision is profitable.
For some the idea is everything. Household names like Google, Facebook, Skype and Twitter have set the bar high when it comes to startup success. If your idea does not change the game, change the way people behave in their daily lives, it is not a success. Threatening the big players in the industry, much like Dirty Harry, is the goal. While this path is not for everyone, history has shown that the bigger risk you take, the better the reward. Ideas like these do not come every day. If you think you have the next breakthrough, you don't have time to sit around. Find funding and bring your concept to the world.
Unfortunately, a lot of ideas live and die according to these 10 steps. What the article fails to mention is the process of refinement that goes along with any venture. At first your plan might look like what is already being done. Although disappointing, it should not be an dream killer. Find out what else is out there, what could be done better and fill the gap. Finding your niche is a key decision of the planning stage.
For TraySoft, an older startup that was one of the first online phone service providers, their "great idea came late in the game. Even with modest returns and little support, they pressed on with their product and listened to their customers. When they found that dial-up users were not able to use their product without interrupting land line service it inspired an idea that continues to bring in revenue today. If your original plan isn't raking in dollars it just means you will have to work harder to create a more innovative and useful product. Pivot.
In essence this is Paul Graham's advice on forming the concept for your business. In addition to endless advice on the ways to organize and kickstart the company, he offers a demystifying approach to the idea stage. It doesn't matter what your original plan is, it will likely change. What does matter is that you keep trying and find a way to make it work. While the end product may not be what you imagined, with tenacity and an open mind it will be a more useful, valuable development.
So you have a profitable idea, now you need some funding, right? Not necessarily. A lot of entrepreneurs are going it alone these days, subsisting off of savings while investing in their dreams. These are the bootstrappers. While the rest of the startup world tries to please their investors while developing a product, bootstrappers are thinking only about their customers and finding ways to reach them. Bootstrapping is not a new concept. It worked for the Steves at Apple in their garage days and is a way of life for both Craigslist and Zoho. You can succeed on your own, plenty have done it before you.
Sometimes it can even be detrimental to turn to venture capitalists. While having more money to fund your venture seems like a ticket to success, it comes with a price. Remember that these organizations are professional investors, their main concern is making a profit. Most require equity, voice in the company and a continually widening customer base. By taking their money you essentially have taken on another partner, in some cases a liability.
Even those in the venture capital arena, seeing previous success of low investment enterprises, are beginning to question the necessity of outside funding. Mark MacLeod, an investor himself, points to Facebook and 37Signals as examples of extreme profitability with little, at least initial, investment. He asks "Do you Need VC to Grow?", a pertinent question when some of the fastest growing companies never took a second look at investors.
Bootstrapping is always a risk. The stress of finances, product development and customer acquisition rests solely on the shoulders of your team. No VC veterans will be there to lend advice and consolation when the road gets rocky. But if you are one of the few willing to take the plunge there is huge potential for profit.
The right business partner can make or break a venture. How to choose the right colleague is a heated subject. A few brave individuals go it alone but most successful start ups don't fly solo. There are many reasons for this. With multiple people involved in the early stages of the company, each can tackle a separate task according to their strengths. Of course, you can't have a specialist for every role. The more partners you take on the more diluted your shares become. Each founder will look for different qualities in their associate. As Naval at Venture Hacks claims, there is no standard for choosing someone to augment your skills, but they do give some tips to evaluate whether you will mesh with candidates.
If you have doubts that founder squabbles will derail your venture, just take a look at the story of Andre Janus, CEO of Cristaux International. A year after setting up his business he decided to bring on his friend and offer him a small amount of equity. Now, with revenues streaming in, his friend wants a greater share in the company and more compensation. Luckily millionaire entrepreneur Norm Brodsky stepped in to share some wisdom. Even in friendly relationships tension can develop, sometimes to the point where legal assistance is needed. Business is always risky and disputes between co-founders can literally tear companies apart. Pick your partner carefully, they are the one co-worker you can't fire.
Hiring is the first major challenge startups encounter. The first few employees will guide your success or failure in the delicate early stages. They should obviously be smart, talented and dedicated to their work, but they also need a little extra. Something that makes them stand out as the perfect addition to your team. Mark Suster notes two things to look for when recruiting those crucial first members of your company. First, find people that complement your personality, at least the side of your personality important for doing your job. You might be really happy developing programs but hate having to deal with users. Whatever your expertise, try choosing someone that will complement it. Use your workers to compensate. On a related note, your team should not all seem exactly like you. There will be a lot of roles to fill in the beginning. Matching the worker to their job will improve their happiness and efficiency.
Beyond diversity there are many more factors to consider when hiring in the early stages. Andrew Chen, a blogger in Silicon Valley has a few recommendations when it comes to your employees. He recommends people who specialize in one area but have broad strengths as well. This way they will be competent in their position and able to fill other needs as they arise. A positive, can-do attitude is a must. In the beginning things need to start moving at break-neck speed to break a profit and show investors your potential. There is no room for people who are not interested in their jobs. His other advice deals directly with adapting the hiring process to test whether working with this person is actually what you want. Using real duties in the interview process, even spread over a couple of days, gives you an idea of what the candidate is good at and if they are a valuable addition. Try prospective employees before you commit to hiring.
Dharmesh Shah at OnStartups is a firm believer in throwing workers in the pool to see if they can swim. Business relationships are like marriages and you need to know who you are getting involved with. Rather than use interviews and testing, put your employees on as contractors for a few months to test their mettle. If after the allotted period the employee has demonstrated quality work and is respected by their colleagues then they are offered a permanent position. If not, they are shown the door. Shah anticipates backlash against this sentiment. These kind of temporary positions are unpopular with workers, just look at the comments. Still, it's something to consider if you are having trouble finding the right person.
Whether your company involves intellectual property, real estate transactions, business negotiations or product patents you will need an attorney. Even simply dividing equity and compensation in the venture is a contentious issue, often requiring legal help. Lawyering up is an important decision for any company in the early stages. Though it is a large investment, it has potential to reduce losses in the long term. If you're looking for a lawyer for your new business, there is a startup for you. LawPivot, a website created in 2009, allows users to pose questions to lawyers and get advice. For startups this kind of interaction is invaluable. Aside from answering the immediate question, businesses can size up potential representation and find someone experienced in their field and willing to help.
If you're not sure why you would need a lawyer for your business, take a look at this talk with Martin Nichols. He focuses on the issues important to startups, a natural direction in Silicon Valley. The lecture was aimed at law students and has a lot of advice for them. Businesses too can learn from this. Rather than expound on what lawyers can do for your company he explains what a company should look for in legal assistance. Many times attorneys and those in the business world don't see eye to eye. Getting these pieces of your venture on the same page speeds things along and clarifies the goals of both parties. While Nichols' primary experience is in mergers and acquisitions, his advice on communicating across professional realms is helpful for all legal interactions.
Once you have a great idea, you need the cash to fund it. The most popular option, after friends, family and personal savings, is venture capital. With around 500,000 startups founded every year, though, the competition for investment is fierce. Some ideas might be able to fund themselves, but this is the rare exception. Most entrepreneurs will have to step up and defend their product to get the capital they need.
There is no formula for what works in a startup pitch. Different types of funds specialize in certain fields and seek companies focused in related industries.While its impossible that the same pitch will work in every scenario, there are some mistakes to avoid. Angel investor Ty Danco shares a few of the missteps founders commonly make. Not surprisingly, most of the issues arise out of lack of trust. Investors are essentially giving you free money and need to have confidence in your talents and capabilities. Lying, exaggerating and poor preparation are sure deal breakers. Don't bring your responsibility into question and your investors won't have an easy reason to walk out.
While we can't say what makes venture capitalists support certain business over others, we do know which companies have garnered funding in the past. While your average founder can't leverage a resume that includes executive level positions at Facebook or an idea as universal as Twitter, these ventures obtained funding for reasons beyond their notoriety. First, all of them, except Twitter, demonstrated a working product already generating revenue. Investors like to see that the product, whatever it may be, works and will sell. Ustream proves that your idea doesn't necessarily need to innovate if it disrupts existing technologies and has unique appeal in niche markets.
While there are no solid guidelines to what sells a pitch, self-proclaimed serial investor David Rose has 10 pieces of advice for entrepreneurs who need capital. Not surprisingly, integrity is his top priority. He focuses on qualities that should be embodied in a pitch, rather than specific phrases or buzzwords. Jargon might grab attention, but carries little weight come decision time. If the idea is great and presented well, there is a good chance that someone, eventually will listen. If not, you can leverage personality like the founder of Domo at Launch Conference. When pitching, there are no sure answers. Make your impression, hope for the best and keep trying until you find someone interested.
Once you've hooked them, its time to reel them in. Don't be hasty in your decision, however. Angels are giving you a lot of responsibility and often want something in return. Mark Zwilling characterizes a few of the more underhanded forms of investors. Having a partner leech revenue and time from you is worse than not having enough money to get started. Your business should be a passion and ensuring it succeeds is always in your interest.
Once you have your business up and running its time to focus on growth. Choosing where to spend your money in the early days is important and will indicate what is important to your company. Sean Ellis has some advice on the important milestones for your startup. While these are great goals to aim toward, as Ellis says at the end of the post, all companies are different. Some require an ever expanding user base while others need to develop their products to fit the market. Define which milestones best fit your ventures aims and work quickly to reach them.
In addition to spending where it counts, businesses that save when they can have much higher chances of success. Jason Calacanis has some ideas on how businesses can save money. While the advice on buying Macs and expensive coffee machines is hotly debated (see the comments), many of the suggestions are unquestionably useful for new ventures. Trimming the fat is often the easiest way to save money and increase your ROI.
The case of Instagram is an exaggerated example of the importance of getting a running start. Faced with a horde of new users, founders Mike Krieger and Kevin Systrom knew they needed more capacity to accommodate their clients. Finding that their current supplier could not deliver in time, they asked around and eventually found a solution. Since that time they have turned to other sources for inspiration and implemented their own analytics systems to meet the needs of their users and expand the company. For Instagram the life of the company hung in the balance of one simple decision. Your choices may not have such an immediate effect on operations, but if you survive long enough you will certainly end up learning from mistakes.
Tales of CEOs hosting conferences in bathrobes instill startup culture with a sense of intrigue. While there are a few eccentric individuals in Silicon Valley, the majority are level headed go-getters who just happen to have a business idea some would call crazy. In the world of startups obsession is not a psychological disorder, it is the way you must feel about your idea. Just take a look at these office spaces and you'll see how corporate image is embodied in the work environment itself. Startups make their own path when it comes to business philosophy and how to keep their workers as productive as possible.
If you compare the company policies of startups with the giant corporations from the 1950s and 60s you'll notice some glaring discrepancies. Many founders question if the rules of old actually increase the effectiveness of their business. Brian Halligan, the CEO of HubSpot, draws inspiration from Mad Men. By realizing what did not work in the past, companies are able to keep workers happier and working harder for longer. With workdays sometimes stretching over the 10 hour mark, this kind of morale boost is essential. Unusual company policies like telecommuting and alcohol in the office are gaining popularity in ventures that know their employees work better when relaxed. The days of starch and strictures are giving way to a more open and focused way of working.
How do you create this kind of environment for your employees? Chris Moody identifies the two components that combine to create culture in a business: values and vibe. Values are the ideals that your company strives to, through its products, decisions and employees. Vibe is intangible side of a company: how your employees work together, how you communicate with your employees. His advice is always to err on the side of value, rather than emphasize the friendly vibe of the company. In a sense, he is right, a company is judged by what they create and the thought process that went behind that product. On the other hand, no employee wants to work in a fascist workplace. Be careful where you lead your company. Both too much fun and too many rules can be disastrous.
Experience is the best teacher and this is no less true in the business world. Seasoned entrepreneurs know the tricks of the trade, the common ways things can go wrong and how to make the tough decisions. At the 2009 Startup School some of the most influential startup founders shared their do's and dont's with the community. While their advice doesn't qualify as a business plan, they do highlight some of the most common mistakes starups make.
While Twitter, Facebook and Skype are the most common companies people turn to when they think of startups, new business ventures do not have to revolve around the WWW. Sticker Mule made a name for itself helping people to make custom stickers. While its service is based on the web the company creates a physical product, a rare feat in the startup world. They did not create a new technology, they simply devised a better way to bring it to a wider market. For tips on how to market a physical product in the digital age, heed their experience.
The golden boy of social article aggregation, Digg has made a huge impression on how people use the web. The brilliant idea, however, did not always seem such a sure bet. Founder Kevin Rose risked everything for his dream of bringing the best content on the web to the front page. Digg had little revenue, no users and many expenses. Despite these challenges, Rose knew that his idea would attract millions. Even AOL could not stop him. If you have a vision and know it will work, sometimes you need to hold on for the ride.
In an untested market with no example to follow, its best to know what to avoid. These failed founders reveal the kinks that proved disastrous for their companies. They faced everything from poor hiring tactics and fizzled interest to partners jumping overboard. Even so, the stories of their mistakes are more valuable than any advice from an insider. While what worked in one venture might not work in another, the factors that lead to disaster are often universal. Take heed of their warnings and learn how NOT to run your company.
- Founders at Work tells the story of famous startups in their early days. This snippet is the foreword by Paul Graham, owner of successful incubator Y Combinator. Famous figures like Steve Wozniak and Max Levchin are interviewed for the things that inspired, troubled and helped them with their ventures. Learn from the real life stories of the businesses' top minds.
- Guy Kawasaki is a big name in the world of startups and his Reality Check delivers. Guy focuses on the how to make it big in Silicon Valley and the art of making connections. He keeps the tone light and friendly while sneaking in tons of advice and experience. Its about ripping the top of less successful ventures and finding out what really works.
- Not as universal as some of the other books on this list, Crossing the Chasm deals with the problems bringing technology to the masses. While innovation is great on its own, if no one can understand it demand will plummet. Since so many startups focus on new software or a web platform they should know the perils of an overly technical vision.
- The founders of 37Signals, Jason Fried and David Hansson, show their own steps to success in REWORK. The book cuts through the standard jargon and number crunching that mars much of business writing and offers practical solutions anyone can employ. The sweeping manifesto shows the business world as it is and recommends changes for the 21st century. If you want to know how things really get done at startups, this is the one to read.
- Economics Professor Barry Nalebuff at Yale explains the concepts behind Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small. He shows how easy it is to find problems in the real world and how with just a little creative thinking you can be on your way to solve those problems and making money from it. He demonstrates that while technology has the potential to fix problems, but can also create new ones. Be receptive to the shortcomings of the world. You never know when inspiration will strike.
- No one school has sent more entrepreneurs to Silicon Valley than Stanford and the entrepreneurs a the top tech companies often return the favor. In this video Guy Kawasaki explains the importance of enchantment. For him being likable is not just about making friends. It allows you to discuss the hard topics in business in a casual way and promotes trust in your customer base. He is not the only presenter. Numerous talks have been given on all types of topics valuable to startups. Learn from those who have paved the way including the likes of Mitchell Baker, Gil Penchina, Jim Breyer and other legends in the industry. The talks cover everything from the idea phase to going public and are a great source of wisdom.
- Steve Blank, a professor and entrepreneur says accountants don't run startups. In fact, startups scare accountants. Where accountants pour over ledgers and statements, entrepreneurs are more focused on developing technology and widening their user base. Success on these terms doesn't necessarily come with dollar signs. He is joined by many other speakers through the STEM and Startup Lecture Series by Columbia University. It is another treasure trove of entrepreneurial wisdom.
- Kevin Rose tells how he grew his site from one user to millions in this video. It focuses on software and platform development and how to encourage adoption. Highlighting current tools to get the word out, Rose thinks it is easier than ever to get people onboard with exciting ventures. LectureHub, where the presentation is hosted has a whole section on startups with many talks from authoritative figures
How should I attract employees in the early stage of my company?
In the early stages of a venture, with little cash and a need to grow, giving equity to entice employees seems like a great idea. You can sweeten the deal without handing out any real money! Still there are other ways to find talent. Inc.'s Issie Lapowsky highlights the methods Meebo used to build its team: a combination of referrals, smart recruiting and marketing. While equity is a great perk, sometimes your company's strength is enough to grab the employee.
Jason Cohen of Smart Bear Software has a different approach. He supports equity as an enticement for prospective employees, but realizes it also as an investment the employees are making. Since they are probably sacrificing some amount of compensation to join your company, options are a way to balance the score. He even developed a system to determine the right amount for a specific company. Whether you go with equity or other incentives you're going to need to work hard and be patient to find talent.
Are partners necessary?
Picking a co-founder, or a couple, is one of the most important decision that a business owner will make. Knowing how to pick the right one, or if you even should, is a contentious subject. Neil Patel thinks that, while it is not necessary, having a partner is an easy way to add value to your business. You not only bring in an employee, you gain a source of knowledge, comfort and contacts you lacked before. That said, having a partner is more work than going it alone. Disagreements are bound to occur and may even spell the end of the partnership. While Patel firmly believes in the benefits a second pair of eyes brings, he does not paint an entirely rosy picture of the relationship. Take your time in finding the right person and you'll be happy you did.
When to hire and when to fire?
Startups have earned a bad reputation when it comes to keeping employees on board. In volatile industries like ecommerce, online marketing, and social media companies need to stay ahead of the game and one lackluster employee can mean the difference. But before you head over to the chopping block get the scoop on a couple legendary founders' opinions on turnover.
At Facebook the goal is to find talent, but not necessarily keep it for long. Zappos on the other hand aims to keep its talented employees as long as possible. Granted these two businesses work on extremely different premises. Zappos focuses on promoting a shopping experience while providing unbeatable customer service while Facebook looks for innovative new ways to realize social interaction on the web. Where Facebook wants talent to finish products quickly and bring in fresh ideas, Zappos focuses on pleasing their clients. The two styles lend themselves to different sorts of turnover rates. It is much easier to meet the customer's needs if your employees are happy and believe in the company. On the other hand, the top-notch developers may be interested in the project they signed up on but find no suitable alternative after completion. While constant hiring has its costs, there is no proven way to go about it. Depending on your business, the needs of your customers and the employees you take on, your company may look a bit more like one or the other.