Consultant Thursdays: The Top 12 Points To Think About When Forming A Startup
I honestly believe there is no better time in recent history to do a startup than right now.
The tools are much easier to use to build websites, and there’s a lot of talent that’s on the market to help you do it. Of course, money will be an issue, but it’s even less of an issue than during boom times. I’m working with a few startups, and there’s a certain exhilaration of creating something new.
This is something I forgot then remembered going through Startup Weekend LA, and it was interesting seeing the mix of people interact in a creative environment. All six teams got a project out the door, but each with varying levels of quality and efficiency.
There are a few caveats. I’ve been there many times before, and they aren’t all rosy dreams and promises. Startups depend heavily on having the right mix of talent; ideas of cheap, but execution usually isn’t, and it takes more high value people than truckloads of cash.
(Or, ask Microsoft about Sidewalk. Ouch.)
Some of this is written with a company in mind, but many startups now may be just one or two guys in a garage. Really, there is no better time. Read on.
There’s no such thing as first to market
Remember Excite? Web Crawler? Altavista? Shopping.com? Sidewalk?
They were first to market, but they didn’t have a product that was effective as Google. Google was very, very late in the search game. Facebook was late in the Social Media game. Who’s standing now?
Building and growing businesses is also about creative destruction. Products die and rise again. If you have a compelling story and feature set, people will flock to your site like bees on honey. It means you are serving a market that’s under served, and that you’re first to the market with something.
One person that has an idea can be a startup
All you need for a startup is the people with skills that can get it out the door. That means you need can do people that have the right attitude about being hands-on and getting things done, because at the beginning, there isn’t going to be enough money to hire a branding company, or even less to hire writers for the website.
You don’t even need a company structure: you can get it going just enough to start generating revenue, show it off to venture capitalists, and voila, you’re the next Jason Calcanis!
For example, to get a project out the door, the customers (or even better venture capitalists) aren’t going to be looking under the hood of the programming, or much less caring about the perfect user experience; what they will be looking for is a product they can use. Having the right mix of people (for example, a designer, developer, sales person and product person, with a 25 percent emphasis on each) is a great place to start. But it can be just you and a friend — or just you.
How do I know? A new client I just met with. Two people. Internet business, profitable, five years running. And now they’re looking to improve the user interface to increase revenues more.
Don’t hire your friends, it’s bad for business
As the company grows, so does the team. Founders go by the wayside (read: you’ve just been promoted to Director of Special Projects after working 80 hours a week?). Sometimes, the person that really helped out in the beginning can’t help out later because they don’t have the particular skill set to adequately drive the product or help the company.
Sometimes, founders shouldn’t run the company after the company reaches about 100 people. This is happening with one company right now that I know of, where one of the founders is actually hurting the company.
The end goal in any startup is to get to the right size of the business, and if that means you have to fire friends or let the adults take over, do it. It’s about money, and most founders have a sizable piece of the business where they shouldn’t have to worry about cashing out if the right people are brought in.
Most founders also wouldn’t get hired at their own company, because frankly the people hired after that were brought in for the purpose of building something, while the founders had the idea.
Hire people you trust that can get the job done, but you are disconnected enough to if the time comes, you have to let them go. I’m not saying that you shouldn’t ever work with your friends, but what I’m saying when the time comes, and money’s on the table, there’s a good chance they won’t be your friend.
Do hire people you know and trust
In a startup, someone that isn’t pulling their weight is so obvious, you’ll see complaints for months. If you bring people into the startup, investigate their background throughly, including whether they can handle a startup environment. That means if their last four jobs were with large Fortune 500 corporations with education reimbursement and 40-hour work weeks, they won’t like a startup.
Read their LinkedIn profile, talk to their friends, reach out to the community to see if anyone else knows about them. Remember that you’ll be seeing more of this person for a while than your signifcant other, so if you have to work with them that much, you better be able to work with them that much.
Who has the money makes the rules
If you have reached out to angel funding or venture capital, or one of the founders is funding the project out of their pockets or their parents’ pockets, they’re driving the bus.
In fact, I’m going to make a crazy recommendation: at least one person on your team should be the sales or business development driving force, and they should have a track record to driving deals to completion.
I’ve seen many of company that was driven by the technology team or another team that wasn’t sales related, and that’s just a bad mix: developers aren’t trained in business, and it’s really all about the focus on the customer.
That person in the startup will be the driving force to getting customers because 1) they will know what the customers want, and 2) their primary, first, only and last concern is figuring out how to build product that actually makes money. That said, the sales person or money person should be reigned in once in a while, especially when proposing features that will help one small client instead of scaling the greater client base.
In any case, you’ll get the occasional stupid feature because the venture capitalist wanted it, or dad with the trust fund it was a good idea. That’s okay, just limit the damage.
Think Harry S Truman: the buck has to stop somewhere.
There’s never enough money, so plan for it
Jason Calcanis sent out a great note earlier this week about money relating to startups (and few know better than him). His key points were, “what ever you have, stretch it.” That means cutting deeply, cutting swiftly, and showing the investors, one of them you, that you’re serious.
There’s this thought process that everyone internet company should be be big, and that, frankly, shouldn’t be the case. He stated in his email that some companies seems to get more done with 25 people than 40. I remember working for Stamps.com when we were at 550 people, and I kept thinking, “There’s too many people here.”
Lo and behold. They cut.
If I had one piece of truth for every entrepreneur out there, this is it: don’t over hire. Focus your energies on hiring people can run as fast as possible, and focus only on the most important features. If you don’t have enough people, don’t build it, because if you hire too many people, you’ll be cutting those people later.
If you really, really need people, hire contractors that you know are going to leave sooner or later. How do you know there’s too many people? You’ll know. When you have four or five non-performers, you’ll really know.
Every startup has a ramp up phase and a ramp down phase to the real business. Startups should be structured and planned accordingly.
Your carpenter shouldn’t be designing the house
While everyone has an opinion about web design, user experience, product management, and other marketing points, that doesn’t make them uniquely qualified to manage a project through 38 iterations of a logo design (except, of course, if I’m the consultant). There’s a reason you’ve brought together the people on your team, and they should be allowed to do their jobs.
That doesn’t mean their shouldn’t be opinion; if you’ve hired some good people, though, ideas that aren’t as effective will be shown as so through discourse and disagreement, and well thought out answers will lead to the path of the righteous product.
It’s about everyone realizing their role in the company and not interfering to a negative aspect other people’s roles. Someone has to be the drummer or the base player, and it just might be you.
There are a few drummers that come to mind (Guy Kawasaki, Ringo Starr, Adam Clayton), and they seem to be doing okay, right?
Don’t build on some exotic platform
Every once in a while, I hear of a startup of that builds on some exotic software platform like OpenLazlo. That platform might have some advantages, especially in a rich media environment, but here’s a couple points to remember:
- If it were so good, everyone would be converting to it. Software likes a good stampede, and while there may be caveats to using .NET and Java, there’s a reason it’s everywhere: there are a lot of developers using it or with experience in it.
- It’s going to be really hard to find developers if the site’s built in Python and Ruby on Rails. Developers love a new technology, and startups are the green field of using it. That means all those maintenance projects using other languages go by the wayside, there are no tools, but there’s this promise of building it really fast. Until, of course, you have to hire more people outside of your circle of friends. It’s a really bad idea to set your sights on a technology that you’re going to be paying developers a premium later.
There’s no harm on developing on PHP if it gets you out the door and beyond, and there’s no harm also developing a site as throwaway code if you know and plan for it.
Focus on features people will use, instead of silly administration tools used by five people once a month
The best thing about a recession and a lack of money is that companies do more research on figuring out exactly what their customers need or the product features that are required to get the project out the door, instead of just throwing stuff against the wall (read: Google). This is because money is tight, and every dollar counts.
If you are building features, focus on the ones that help the greatest number of people — for example, a feature that helps 100,000 people is better than one that’s going to help 100 people once over a year, and it has a lot higher return on investment — because that’s where the value is.
Make a big long list of features, write them up on a whiteboard, and guess (really, guess) how many people will be using a feature, what percentage of the time, and if it can be done by hand.
This could mean going into the database directly to enter information, or relying on less than automated tools. If it’s more of serving a small group of people some manual work that can easily be done, don’t do the feature.
Don’t let perfect stand in the way of good
Thinking that you’re going to have every feature perfect on the first version is an unrealistic expectation; that’s why it’s the first version, and the early versions of most software usually suck (read: Microsoft Windows). That said, that gives you a lot of room to get better, and that should be your goal — do just good enough today to improve upon later. Your users will excuse a few issues at the beginning if you’re upfront with them.
The first rule: work in iterations.
Agile development is an awesome culture for startup development, because the team knows there are going to be areas to refactor, and parts of the software that just aren’t going to be working. Knowing that is a huge release of stress, and allows the team to move forward.
The most important goal should be getting something out there that accomplishes to goal 80 percent of the time, and keep working on it.
Lastly, remember, 90 percent of startups fail, learn from it
There’s a reason only three startup ideas have survived Startup Weekend around the country: most startups don’t see the light of day for all kinds of reasons, mostly because there wasn’t enough thought put into developing the product. That goes the same in the real world, sometimes for not having enough cash, sometimes for having a poor product strategy.
It all depends on your attitude — if you remember that it’s the ride of the lifetime, you can live it and enjoy it. Forget about the money, and remember the joy of creating.
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