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Geek's Startup Business Experiences
Posted by
michael
on Wed Feb 02, 2000 12:59 AM
from the buy-a-lot-of-ramen-noodles dept.
from the buy-a-lot-of-ramen-noodles dept.
FreshGroundPepper writes "A few friends and I are in the process of starting up a new software company. (We are compiling our business plan now) With the vast amount of software/startup experience among the /. crowd, we were wondering what kind of potholes and advice our fellow geeks could lend in the way of generic do's and don'ts in the early stages of the game. I'm not looking for legal advice so much as just any gotchas that others have run into."
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Geek's Startup Business Experiences
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Management (uhg!) (Score:3)
It's pretty hard to RTFM when there isn't a FM.
Don't know if that helps, but I feel better now that I've vented a little bit.
Things to avoid... (Score:3)
With all the people under one roof, you run less of a risk of having situations get out of hand, and they can be resolved quicker.
At a startup, everyone has work hard and be good at what they do; your personnel resources will be stretched so thin that everyone has to be the best at what they do in order to get things done.
Linking your download page through them is a waste of time. It makes your software that much harder to download, and when you try to release a new version, you have to wait for them to update your links. If you want to know how many people download your software, audit your ftp logs.
There are other considerations, of course, and some of these may not even apply to you. But I hope that's enough to get you started. Good luck with your venture!
Regards,
Aryeh
You should... (Score:4)
...ask for advice from random chuckleheads on the net. You can check that box off now.
As stupid as it sounds.... (Score:4)
For instance, at Carnegie Mellon, there's this seminar series going on right now that has people who graduated from CMU and talk to people about how to start your own business. I went to one such talk from a guy (sorry, forgot his name) that founded a biomedical engineering firm, and is now starting up a
That's besides the point, but his lecture had some great tips. Here's a few that I can remember (this was almost a year ago, so bear with me):
That's all I can think of right now... there's a lot to do to start up a business. And even if we all hate them, business people are the right people for the job to get your business going before it gets out of hand. Remember, while a geek may be able to code up his app, being able to juggle licensing and coding is a big responsibility.
Management ios key (Score:3)
Its been said that more buisnesses fail due to bad management then all other reasons combined. This is true, so get good management. Techies who are barely compitent can get the job done if management recignises their weakness and plans for it. (note that I'm not suggesting you get less then the best techs)
Watch the cash flow. Every month get a summery of all the money you have, and how much you spent. Get it noterized as correct every three months. (a previous poster mentioned that bogus books were showed to him - make sure you have a good case for a law suit if the books are bogus) Don't take anyone's word for how well you are doing. Bad management will show up in cash flow first so know what the bottom line is. After a few months you should get a feel for how much you normally spend. Once you have a general idea figgure out if you have enough money to make it to release.
My dad got involved in a spin off with 15 others, and a product that was pulling in 15 million/year and would for the next 5 years. They looked at the cash flow one month and decided to send my dad out as a contractor for a week. They needed cash flow now, and even though they would get 15 million this year, money in july (or whenever) doesn't pay the bills until then. They had to make a choice when doing this, and it means that their next version will be a couple weeks latter, but at least they won't go belly up with lots of money coming in latter. (Fortunatly the manager that arranged that spin off "quit for personal reasons" a few months latter - I own stock in and work for the parent company I was not happy about losing that income stream)
BTW, you have heard that 50% of all buisness fail in the first year. I just read in the news paper (but I can't remember which one, so you should research this or call it hear-say) that 85% of startups make it.
Good luck.
Don't hire some east coast banker to be your CEO (Score:4)
Rule #1: Don't Sell Out
That doesn't sound very hard, but it is. You have a great idea today. You have ideals and standards. Soon, the pressure to make money will test your morals. Maybe you could IPO bigger and sooner if you hired some banker fuckbag to be your CEO, and if you let him hire his gang of hangers-on to be your executive management team. Maybe you could make extra money by selling your customers' private information. Maybe engineering is too expensive and you should just outsource the whole thing to Andersen Consulting or whoever.
The love of money will make you abandon all of your now-lofty ideals. Stick to your moral guns and you will be much happier and, eventually, more successful. History might even remember you. You may have to wait a few years or even decades before success hits. That's the price of happiness.
-jwb
First and Foremost (Score:3)
With those in hand, you'll be much more prepared to organize a software project that achieves its goals on-time and on-budget, has the functionality needed by its end users, and is maintainable over the long term.
He bases his writing on hard fact: innumerable studies have been done that indicate what works and what doesn't in the programming and in managing programmers. Learn from the mistakes others have made before you!
And I suppose I'd best disclaim that it would be utterly foolish to dismiss these books out-of-hand simply because they are printed by Microsoft Press. I caution against being a simple-minded naysayer; if the books are no good, prove it by reading them.
('cause they'll influence you for the better, regardless what you think!)
--
You want Gamasutra (Score:3)
Some current articles:
Postmortem: Zombie's SpecOps: Rangers Lead the Way [gamasutra.com] by Wyeth Ridgway [02.01.00] This third-person combat sim had to deliver up to 10,000 polygons per frame at real-time frame rates all while upholding rigorous standards of realism. Lead programmer Wyeth Ridgway discusses the features of the Viper engine created for SpecOps as well as what went right and wrong in development.
Optimizations Corner: An Optimized Matrix Library in C++ [gamasutra.com] by Haim Barad [01.31.00] In this installment of the Optimizations Corner, Haim Barad discusses a better way to manipulate vectors and matrices using Intel's Streaming SIMD Extensions. In this article they present a set of optimized matrix routines that take advantage of SIMD architectural enhancements done to recent microprocessors which are a perfect fit for matrix and vector operations.
Artistic License: Acquiring, Managing and Dealing with Licenses (and Making Them Profitable) [gamasutra.com] by Elizabeth J. Braswell [01.25.00] So you're thinking about trying the Sure Thing: to go after a popular character, TV show, book or movie, get the license, spend a little, make a million. There's just one catch - it isn't that easy. Elizabeth J. Braswell discusses the stickier details of acquiring a license, working with the licensor, creating an innovative product which will appeal to fans and even sublicensing - creatively making more than you expected.
Planning and Directing Motion Capture for Games [gamasutra.com] by Melianthe Kines [01.19.00] Motion capture is a great tool for creating animation for certain types of games. Like any tool or piece of software, if you learn how to use it properly, it can make your life easier and produce great results, but if you try to wing it, chances are you'll end up wasting time and money and may come away with nothing useful. Melianthe Kines discusses motion capture in depth.
************************************************ ***
Compiling a Business Plan. (Score:3)
MAKE BACKUPS! (Score:4)
A start-up that I'm involved with was already in the process of meeting with Vulture Capitalists, and I get a panicked call saying that the server had gacked, and asking if I could do anything to save the data. Then I'm told that there are no backups whatsoever. Ouch. So I'm thousands of miles away, trying to recover the entire operation from a roasted hard drive on a computer which would no longer even boot, not even enough to install an OS (this was a RH Linux 6.1 box) on a different partition. Eventually I was able to get almost all the data back, including all the really critical stuff, after I had him put the hard drive on a different computer, but for a few hours there, everyone was sweating bullets. I can only imagine the reaction if investors dropped in on us while this Keystone Kops episode was going on. I have that mental image of one of those cartoons where a bag of money sprouts wings and flies away.
Hardware failure doesn't always happen to "someone else." Make those backups.
Cheers,
ZicoKnows@hotmail.com
My experiences incorperating (Score:3)
Neither of us knew anything so we went to city court house and started asking questions. A month or two later we were a company. We only stared with about $2,000 so it must not have costs much. I think our biggest expense was a lawyer which I think we could have gotten by without one but it was nice to have someone make sure we didn't get things too wrong. The government won't tell you until it is too late (or so I hear)
I don't keep all the records (my partner does, thank god, and I just know enough to make sure the numbers add up about right) but I can tell you it is very important to keep good records of everything. We were slack for about 4 months and it is still a big headache almost a year later.
I don't know if this applies to y'all but my partner and I had to learn to trust the other to make business decisions with out the other. We were running everything past each other and there is nothing like a committee to stop progress when you need to get your feet under you asap.
Hope this helps some.
Citrix
Re:Experienced businessmen (Score:4)
There are four "cornerstones" a business really needs to be built on: sales/marketing, administration, accounting/finance and production (product or service). If any of these cornerstones are weak, your building (business) will come crashing down.
Most people make the basic mistake of assuming that a great product will make a great business. This is a myth! Look at McDonald's, which is pretty much the world's largest fast food chain. OK: All those who think McDonald's makes the greatest burgers you've ever tasted raise your hands! What? Nobody? (Actually, I'm sure I'm going to get SOME loser who's going to say that McDonald's burgers are awesome. Go away...:)
McDonald's Corporation is big and successful for a few reasons: great marketing is surely one of them. But they also have a business administration system by which any McDonald's franchise is basically guaranteed to make money if they follow the system to the letter. Cost controls are in place. Training, hiring, and managing employees are all part of this system. Accounting systems are part of it. These things are all first-rate and tailored for McDonald's line of business. And these seemingly "boring" business tasks can make or break your organization.
I know what you might say: "But McDonald's make burgers and we're making software!" Software Shchmoftware. A widget is a widget. All businesses are about making money and the product is only a means of doing that. Your key management -- the people in charge of business administration, accounting/finance, and marketing, are people that should not be "in love" with the product. Leave that to your people who are making the software. People who are "in love" with the product will be blinded by it, not seeing the forest for the trees. Those three cornerstones must be as strong as (or even stronger than) your product cornerstone.
I'm a person who's written business plans and seen business startups fail. And I have also seem them succeed. And I can tell you that the most important thing to keep in mind is to realize that when you are building a business, you are putting everything on the line. Build your business on a strong foundation and you will succeed. Ignore one of those cornerstones and you will most certainly fail. Prepare now, because you don't want to be chasing fires later.
Good Luck,
Rob
Show me love! (Score:5)
The first startup didn't hire anyone, so it never got off the ground. Lesson: If the existing staff is already working their collective ass off for you, and there's more work in the queue, get more people. The trick here is to not hire more people than you need.
The second company managed to hire an extremely talented staff for below industry-standard wages, due to the lure of the stock, but failed to keep this staff by awarding 3% raises to everyone in the company. By giving the top performers the same amount of raise and stock options as those not performing to the same level, the company all but assured that the talent would leave in droves. And they did. Lesson: A little extra money in the right place goes a long way to keep your talent.
The third company had a mostly incompetent staff and was the most aggravating company to work for out of the three. The handful of competent people there carried the load of the greater numbers of slackers, whiners, and incompetants. Lesson: It doesn't take too many bad apples to ruin the whole bunch.
I'd say besides what I already mentioned, one of the most important things to keep in mind is that an employee who wants to be at work, will be willing to go the extra mile to make it succeed.
I hope this helps. There are alot of hard lessons to be learned in the land of startups. Unfortunately the only way anyone learns anything is to fuck up and adjust accordingly.
Good luck.
Be careful, and good luck (Score:5)
Go with people you trust
I've done this three times, and twice come unstuck because of failures of trust between the technical people and the finance/sales people.
In the first case we were in a long development cycle for a product. The finance director kept giving us reports which said, yes, things were tight, but we were solvent and could do it. If he hadn't, we'd have diverted effort into consulting, which would have made a bit of immediate income.
In the end, just as we were about to launch the product, we ran out of money very hard. The finance director (who was experienced, and a personal friend) had been keeping two sets of books, and showing the rest of the team doctored figures. His excuse? 'If you'd known how bad things really were, you have gone off and done other things and we'd never have got the product finished'. Well meant, but not helpful.
In the second, the marketing director, a very experienced businessman introduced to us by the local business development agency, tride to bribe a local government representative to get a us contract. After we'd launched product, as sales were taking off, when we were already nicely profitable. Well meant, but very, very stupid.
If you're east of the Atlantic, don't waste time with VCs
I could not possibly count the hours I've put in to trying to raise venture capital. With excellent business plans - I had a business plan for Web auctions fully fleshed out and costed back in 1996, for example - competent key people, all that was needed (except finance) to make the project fly. It's just a complete waste of time, here in the UK. UK Venture Capitalist houses are extremely cautious and do not like either technical projects or geeks. If you invested that same amount of time in development that you waste hunting VC, you'd get your product to market.
I know only three groups who've successfully gone down the VC route, two from here in Scotland, one from France. All three moved their whole companies to California, first.
Don't take it too seriously
But finally, remember that it's a gamble, a chancy game. I wish you all the best: but, if you fail, remember that it's a set-back, not a disaster. Don't put yourself in a position where the company going down would personally bankrupt you. If it does happen, and you're reasonably sure the reason it happened wasn't due to your incompetence of some deep personal failing, brush yourself off, sort the mess out, and start again.
Don't hire your friends (Score:4)
Advice people hate to listen to (Score:4)
1. Just because you can make better products than a successful company doesn't mean you'll be able to get anywhere near that level of success. When that company started out, they were in a different situation than you (maybe they started five years ago for example, when the landscape was different). And you're not seeing the years of work that went into doing non-techie stuff like marketing and generally making good decisions.
2. Look at the median sales for your field, not the mean. A very common mistake is for a software entrepeneur to say "Big Company X has sold 2,000,000 copies of its software; all we need to do is sell 5% of that to stay in business." That's not how it works. Realistically, a handful of big companies might sell 90% of the products in a field, and that remaining 10 is made up of hundreds of little guys trying to get some action. So while the mean number of sales might be 100,000, the median might be 10.
Growing pains inevitable (Score:3)
Your corporate culture is going to change during the startup and growth phase. Each will require different styles of management and different styles of worker - and sometimes different workers.That may sound cruel, but think about it; the people you want running the show when you have 200 workers aren't necessarily the same that you want when you're running three or four coders out of somebody's garage.
Many companies fold during this transition. Getting a few jobs and contracts and filling these orders is easy compared to attempting steady growth.
Everything in your business model, from billing rates to accounting methods, has to be checked and rechecked. Many companies, especially in high-tech, end up in debt at the start of their existence; then, in order to pay the debt, they incur more debt going after projects with questtionabe margins. They build more debt as growth continues until they become unsalable and unsteady and finally topple.
--
Avoid using proprietary languages! (Score:4)
By the way, on an offtopic question, does anyone know of any projects to develop an open source variant of the xBase Language? I would be interested in contributing 14 years of experience.
How To Do It And... (Score:4)
"How To Do It And Not Get It From Someone Who Did It And Got It!"
:)
1: The planning is everything, the plan is nothing
Damn straight you should have that plan written out! It's for you - to hell with anyone else who reads it. If they read it and it helps, bargain. Just never forget, it's for you.
Also, once you've written it, be ready to throw the whole lot away and write it again if necessary. If I meet a leading-edge project or a start-up team which has a plan that hasn't been updated in a month, I start running.
No shit - it's the act of planning that's critical. You've looked around, you've researched, you've figured something out and you've written it down so that everyone involved understands & agrees. If you don't have that, you have no foundation.
Of course, tomorrow brings something entirely new (new tech, new prospects, change in owners, etc etc etc). Don't valiantly attempt to change reality to fit your now outdated plan. Modify those parts of the plan as necessary, get everyone to agree to the new ideas and get back into the work.
Trust me, it will make one hell of a difference. I'm doing a new company now and I thought I could get away without doing the plan. HAH! Big F**King mistake. Mind you, if I'd done the planning right in the start, I wouldn't have dumped 7 months into this turkey (note: I've met some great people, learned some wonderful things and I think we can still make it fly - maybe the stress & lack of $$$ will be worth it???
2: Worship Your Prospects/Customers
If you treat your customers/prospects with extreme respect, act professionally (* see below for definition of "professionally"
3: Acting Professionally
This does not mean always wearing a Brooks Brothers Shirt, Armani Suit and spewing forth sensless metaphors ("Let's just roll it all up into one big ball of wax, gentlemen"
To me, acting professionally means:
4: Marketing
Good marketing walks a fine line between "truth" and "bullshit, arse licking insanity" - trust me, I've been doing marketing as well as tech stuff. You need to be able to tell the customer about what you have in such a way that it sounds like what they want without bullshitting (don't say it's a 2 tonne truck when it's actually a new form of moped
Get close to the customers and try to learn their language. Watch how they react and adjust as you go, etc. Perform "active listening" (where you say back to the person what you think they've said - not like a parrot though
Yes, that's right, it's called "People Skills" - you have to come out from behind the computer screen, dress presentably (for your client - suit if you have to, golf shirt, riped jeans - what ever they're expecting/comfortable with
5: Good Advisors
You don't know everything. Your team probably doesn't know everything. Find people who know what you want to know and learn from them. Pick the ones who are where you want to be. Don't pick the ones who aren't (sounds obvious, but you'd be surprised
Remember - you get what you pay for. It may not always be in $$$ or stock, but you should pay for it in some way (hell, the number of people I've taken out for a few drinks/dinner/lunch to try to learn from them... )
6: Prepare for the worst, hope for the best
It's not pessimistic - it's realisitc. Have contingencies in place and be ready. Don't get bogged down in the thinking/worrying but at least review what could go wrong and be ready. This doesn't mean you should stress/plan/prepare for/etc a meteor hitting the earth - it may wipe out your company but it'll probably wipe out a lot of other stuff too
7: Cashflow is King
You may look good on paper. It may only be another week until that client's work is done and they give you the final installment of the $2 million job. Unfortunately, your staff are ready to quit 'cos they've not been paid lately, you're getting legal notices from suppliers and the vultures are circling...
Don't splurge on style over substance! That mahogany desk you love will look great in one of those "ex dot.com startup" auction places.
How long 'till the next payment? Right, add a big fat margin for error (installation delayed, signatory canoing in the amazon, lost in the mail, etc etc etc). Got enough cash to survive 'til then? You'd better... (see point #6
8: Everything Else Already Said In This Thread
I cannot agree more with people who have said all those things already about:
I've worked in "startup" type companies in three countries now. It's the same in each one (well, OK, so the languages are often different, the laws are definitely different and sometimes it's easier/harder to get funding, but anyhow...
In a nutshell (and what else is Slashdot but a giant nutshell?
Re:Experienced businessmen (Score:3)
Re:Experienced businessmen (Score:5)
Also get a good lawyer. Interview several and ask for a reference or two. There are a lot of law firms that seem really good, but are in reality over burdened by the amount of activity going on right now in software and the Internet. There are some firms that will take you on deferred payment if you have a solid business plan. Some will even offer to offset fees in exchange for stock later down the road. Shop around. A good lawyer is essential, especially when you are dealing with VC.
Some tips from the front line:
1) Definitely pick a CEO and differentiate duties. In a start up, many of the founders will be doing many things, but make sure that one person has the eventual say. The previous poster is absolutely correct in stating that the CEO's main dities will be in raising money and forging relationships. If someone on your current management team can't do this, find someone who can.
As a startup, many times you see founders acting as "partners", each giving their input to every decision. Reaching a general consensus is a good thing to get everyone involved, but don't operate democratically, nothing will get done.
2) The previous post summed it up: Divide the equity equally amongst the founders. This also means that you should look closely at each founder. Some one who leaves after the first month because they were marginal in the first place can return to cause problems. Wayward founders can become a legal nightmare if you are successful. Equal equity is important to give a sense of fairness to all the founders. If you deviate from this, make sure that there is a real good reason for doing so.
3) Get your elevator pitch down. This means basically that you can powerfully explain what you company does to someone sharing an elevator with you. If it takes you five minutes to explain what the company does, then you need to do some rethinking! Keep it simple and powerful. Ideally it should be explained in a single sentence like, "We aim to be the Amazon.com of snack foods."
4) Think angel. For your first round of money, unless you have a VERY good business plan or an amazing management team (or both!) most VC will not touch you. There is a lot of hype about how much VC money is floating around, but the reality is that they are very selective in who they invest. Angels are your best bet for the initial seed round until you have something to show.
5) Initial valuation. Be careful. With a good idea, a good BP, and a capable management team, you should be able to get as much as a $5 million dollar valuation. But don't shoot too high. If you get too high a valuation, the next round investors will laugh at you. And if they come in at a lower valuation, you will definitely piss off the initial investors (not to mention invoking any legal nasties like ratcheting clauses that will probably be a part of your agreement). Moral: get a realistic valuation. Seek out angels first, unless you really think you have the Right Stuff(tm). In that case, go for it. There are a lot of good VC and they are indispensible for both cash and industry contacts and management assistance.
6) Don't get discouraged by competition! If you have a good idea, chances are that there are 20 other startups moving at the same time with a similar idea. Plan to execute quickly and make sure you do it better. Darwin works overtime in this economy, so be ready for it. But don't get discouraged by competition. Its inevitable and makes you work harder to make a valuable product or service.
7) Lastly, don't be afraid to admit you don't know something. The last thing that investors want to find out is that you lied to them about something. Be honest and frank and you might find that someone can get you your answer or provide a resource to assist. No plan is perfect. No team is perfect. And they know it.
Good luck to you all! Its a hard, long and frustrating road to start your own company, but the rewards are worth it. Even if you "fail" you take away very important lessons and experience to use next time.
Learn from Homer... (Score:3)
Check out Greg's Bridge Page!
Raising money is not easy (Score:3)
- a solid idea which can defend in the marketplace
- a proven team (EXTREMELY important... especially to VCs)
- a solid financial plan (have a CPA check your assumptions + spreadsheets)
- LOTS and LOTS of connections
- LOTS and LOTS of luck
- good sales people
- good marketing people
This is what you don't need:
- a formal business plan (an executive summary will do)
- good technology (nobody cares)
And finally the cold hard facts:
1. VERY few companies get funded. Don't know the exact number, but I'd say les\s than 5%.
2. Of these, 80% of startups fail.
Enjoy!
Re:Experienced businessmen (Score:3)
And remember this chant when the shit hits the fan: "IPO... IPO... IPO... IPO... IPO..."
dont (Score:4)
Experienced businessmen (Score:5)
Get a good CFO once the seed money comes in. An accountant is NOT good enough. It takes time to raise money, be certain that you will know when the next infusion of capital is needed.
Decide on jobs initially. There NEEDS to be a President/CEO, his decision is final. You need a chain of command, not by committee. Make certain that whomever is your starting CEO is ready for the responsibility (raising money, forging alliances). Even more important, make certain that they are ready to step down when the company needs someone experienced in that role.
Divide the initial equity evenly among the founders. There should be NO room for equity fights in the beginning.
Hire good, intelligent, motivated employees. If one of your first hires is bad, you're sunk.
Good luck.
Alex
Have lots of customers (seriously) (Score:3)
A similar thing happened to me this summer. I've consulted for 10 years or so. In the past, we needed that money, luckily now we don't because my largest customer's largest customer dropped them -- they folded, I folded, we all folded.
I didn't really care, (our little boy was starting Kindergarten, so it gave me a chance to get involved with PTA, coaching soccer, etc), but it scrambled a lot of other people's lives.
It is very tempting to keep increasing the amount of time an attention you give to the people sending you the biggest check every month, but you will create either a tail wagging your dog, or a collapse-in-waiting.
Several pieces of advice (Score:5)
1. Choose a name that nobody else would think of using (something like Red Hat is a perfect example) - we got a pretty generic URL, but then it turned out that it was also trademarked (by someone else), so we still have stupid legal problems, which divert our time from the meaningful stuff.
2. When you go to VCs, don't think that they are stupid and can be blinded by bullshit and buzzwords (first-mover advantage, scalable model, etc.) - many (maybe most) of them have very technical backgrounds, started companies themselves, and can speak your language. However, it also helps to speak theirs - read a couple of issues of something like Forbes ASAP, Fast Company, etc. - I generally don't read them, but it helps to tune your mind to the right wavelenght before presentations
2a. Don't think that you are the smartest. If you have this idea, chances are that someone else also did. Moreover, chances are that some of the VCs already funded a similar company, so, obviously, avoid those ones - they will just steal the good ideas from your model for those companies (and they ARE allowed to do that, because they do not sign the NDAs)
2b. Don't give up - we went to A LOT OF VCs before finally getting funded.
2c. And if you are young, they WILL rip you off (in terms of equity they take vs. money they give). Life's a bitch. But if you're successful, it's not going to matter
3. Try to use all possible connections you have, even the weirdest ones. If you have some friends/professors/former bosses/etc. who are very well-known, or just merely very successful, try to get them as advisors - if they are nice they will agree (it's zero marginal cost to them), and you might benefit a lot by just mentioning them as an advisors. Try to get many people fast, even half-committed - it is much nicer to say that you have 10 people (and, of course, give names) when you try to rasie money than to say "well, we two have this great idea". Remember, at the very early stages funding is closely related to the size of the company, e.g. # of people in it.
4. Have fun. Always remember that you have nothing to lose. I personally consider this whole start-up thing to be a game, in which I can only lose time (which is valuable, but I've still got a lot of it - like 50 years
Good luck!!!
Get things on paper (Score:4)
These are things that could have been clarified from the beginning. Money makes people do really weird things, even good friends. Get it in writing from the top.
What is your team missing? (Score:5)
1. The aforementioned crash & burn went ch. 13 because the two key founders had a combined emotional age of 6. Choose the team carefully. The VC's also primarily fund on quality and track record of the team.
2. What is missing from your team? A good marketing guy? No one is more important to success -- including the chief software architect -- so park your geek ego, OK? By the way, most marketing guys are not *good* marketing guys -- get someone that is clearly insightful. If it smells like arm-waving BS, it is. Do you have a manager? You need someone who has actual people management experience for a few years with >16 person teams... this is *not* an area for OJT.. and well meaning but clueless about people management and keeping a shop running will drive good people away... besides burning up your money.
3. Remember that the job of a start-up team is to put scalable processes in place. Almost all companies go through "growing pains". Most can be avoided. The pain is caused by outgrowing the processes that work for small teams. Example: 2 guys whacking code can survive without a defect tracking system. 20 can not. Every process needs to be examined for scalability.. you will miss some, and those will be the walls you hit.
4. When something begins to smell a little like a mistake... ruthlessly surface the issue and squash the mistake immediatly. Bad hire? Throw the bum out NOW. Bad choice of tool? ditto. Chapter 13, Inc. would have done far better if the board had been *less* patient with the clowns at the controls. Small companies can take too many self-inflicted wounds.
5. You *do* need a business plan. Revise it regularly. It's for *you*, not the VC's. Keeps you focused on what matters.
6. Pinch pennies, but in the right places. It's pretty simple, the less money you burn, the more of the company you keep for yourself. Cheap used furniture or even plywood holds up a monitor as well as anything else. Use your money to buy tools that make your coders squirt ascii like a firehose and squash bugs in dozens.
7. There happens to be way more money in the hands of VC's right now than at any time in recent decades. WAY more. They are funding stupid deals that will crash and burn. They are funding big deals because little $2M dribbles doesn't invest it fast enough. Your challenge will be getting noticed, because they are too busy pushing money into the hands of people they already know... people that have made them money in the past. So.. back to #2, do you have somebody on your team that knows how to raise money from VC's? Find one.
And best of luck. A start up will be be best, worst, most educational, most tiring E-ticket ride you can find. Whether you make a zillion or if you crash and burn.
Funding & Building a Startup (Score:3)
http://idealab.com
http://ecompanies.com
I disagree with a few points.
1) Unequal founders - Beginners often want equal percentages. Hogwash. Checkout venture capital homepages for typical percentages.
http://benchmarkcapital.com
http://thestandard.com
2) Full business plans are not always needed at the early stages. However, she adds, "business plans are becoming less and less crucial. It's all about execution and how fast [the founders] can move." The reason? "It's because the world is moving so fast. We want to see an executive summary and a marketing plan; I need to know what the costs are because the revenues are totally fictitious." Besides, Comaford notes, business plans change so frequently that some are almost outdated by the time they're drafted.
3) Decent venture capitalists fund maybe 1% of their offers (pre-screened). Maybe 1-2 million internet ideas being shopped for money today. Become better informed about venture capital mechanics.
Look at CMGI, ICGE, Draper, etc...
http://www.drapervc.com/CurrentPortfolio.html
Even after the pickiness of VCs,
Maybe 15% of VC-funded companies are successful.
Raise this to 50% for CMGI-funded companies.
Small Businesses - 90% fail within three years (due primarily to cash flow problems).
Even 14 of 15 of penny stock IPOs sink.
Some early stages of the startup company hierarchy.
1) $50,000-100,000 small business, home business
2-5) $200,000-2,000,000 idea (2-4 people)
- $100,000 annual revenues, $10,000 profit (after salary).
- P/E ratio of 50!
- Job of early people is to build this idea into stage 2.
- Spend as little money as possible
- Assemble management team, make sound business model & strategy
- Write executive summary of business plan
- Answer all critical questions
- Does NOT mean do 100% market analysis/research.
6) $5,000,000-10,000,000 idea/company (5-15 people)
- Seed Money:
Better - $500,000 - $1,000,000 for 5-15%
Typical - $1,000,000 - $2,000,000 for 20-40%
Worse - $1,000,000 - $4,000,000 for 40-60%
- Finish business plan for 1st stage funding
- 3 months to get company to next stage
- Spend money as fast as necessary to move quickly.
- Take as little money as you really need (for quick expansion).
- Ask for money (when you don't need it) to get powerful people on your side. Make connections.
8) $20,000,000 - 50,000,000 company (10-50 people)
- 1st Stage VC $1,000,000 - $10,000,000 for 10-30%
- Try to get funding from well-known VCs: CMGI, Draper, etc..., even if you get less.
- Proof of concept.
- Buy up competitors.
- Hire professional CFO/CTO.
- Staff big-name board of directors.
- Make strategic alliances and partnerships.
10) $100 million - 200 million company (50-200 people)
- 2nd Stage VC $20,000,000 -$100,000,000 for 20-50%
- Buy up more competitors and allied companies.
- Expand to 300-400 people. Need headcount for IPO.
- Hire big-name CEO/Chairman.
12) $500 million - 2 billion (300-600 people)
- "Small-cap company", maybe a penny stock
- IPO $20,000,000 -$500,000,000 for 10-30%
- B2bstores.com (BTBC) to IPO for $28 million (2/7)
- Palm (PALM) to IPO for $345 million (2/28)
Advice:
1) Connections. A decent business idea with good connections often beats many great ideas. Use funding sources, lawyers, and accountants for their connections and ability to help your company.
2) Management Team. Totally crucial. Find people with real startup experience as advisors and/or management team. Experienced CEOs/managers can do more with 40 hr employee work weeks than newbies can do with 100 hr weeks. Experience tells you what NOT to do.
3) Communication. Between team members.
4) Community. Use CEO resources in your area. In LA,
http://directors.org
http://www.digitalcoastweekly.com/
In NY, check out Silicon Alley,
http://siliconalley.com/sa/events.cfm
http://www.atnewyork.com/
http://www.siliconalleyreporter.com
You Bay Area guys have it easy...
Other Good Articles:
Stuff to watch out for when starting
http://www.thestandard.com/article/display/0,1151
How much to pay employees
http://www.thestandard.com/metrics/display/0,2149
Business plans - are they necesssary?
http://www.thestandard.com/article/display/0,1151