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Paul Graham Explains How to Start a Startup 423

Posted by CmdrTaco
from the spelling-it-out-for-ya dept.
woginuk writes "Paul Graham has posted a new essay on his website on how to start a startup. According to him 'You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible. Most startups that fail do it because they fail at one of these. A startup that does all three will probably succeed.' How difficult can that be? So go start them startups."
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Paul Graham Explains How to Start a Startup

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  • by winkydink (650484) * <sv.dude@gmail.com> on Thursday March 10, 2005 @03:21PM (#11902466) Homepage Journal
    from a successful venture capitalist.
    • by nametaken (610866) on Thursday March 10, 2005 @03:29PM (#11902587)
      A successful venture capitalist would likely tell you to have an excellent written, formal business plan. A good business plan is usually the product of at least two of the three things he mentioned. ;)
      • Not just that...
        be careful of venture capitalists who want an "exit strategy".
        They usually want to sell the company to a larger one eventually to get their investment back. This is usually the opposite of what a hacker would want (selling his work to be locked up in another company), so beware!
        • by WhiplashII (542766) on Thursday March 10, 2005 @04:31PM (#11903405) Homepage Journal
          Um, the exit strategy is pretty much the only thing the VC cares about! VC's want to lend you some money for a short time (3-5 years). They do not want to invest in a company that they will keep! (Those people are called investors, not VCs)

          If you are talking to VCs, and you want to keep the company your own - talk about going public or having a stock buyout program.

      • by flyingsquid (813711) on Thursday March 10, 2005 @04:44PM (#11903588)
        A successful venture capitalist would likely tell you to have an excellent written, formal business plan. A good business plan is usually the product of at least two of the three things he mentioned. ;)

        Emphasis on the word "plan". Many internet bubble start-ups had smart people, had something people wanted, and no matter how much money they saved, still would have failed. They just never had a plan for how to translate products and talent into profits. It's not enough to have the greatest product in the world- you've got to market it, manufacture it, distribute it, sell it, and at the end of the day, reap a profit. Look at Apple vs. Microsoft. Apple focused on "insanely great" products but traditionally has not been able to translate these products into sales, user base, and revenues(though they've been doing much better recently). Microsoft makes products which drive you insane, and instead focused on marketing, market share, and making insanely great profits.

    • by Anonymous Coward
      I didn't RTFA.

      Was Step Two "????" by any chance?
    • by JohnGrahamCumming (684871) * <<slashdot> <at> <jgc.org>> on Thursday March 10, 2005 @03:43PM (#11902773) Homepage Journal
      Allen Morgan, a VC with the firm Mayfield, has a blog, where he's been dispensing wisdom on how to get funded. Read it here: http://allensblog.typepad.com/

      John.
    • by LaCosaNostradamus (630659) <LaCosaNostradamus@NOSpam.mail.com> on Thursday March 10, 2005 @04:53PM (#11903693) Journal
      Why? Many "successful venture capitalist[s]" rode their luck in an investment boom ... while too many of the resulting companies crashed and burned. That's nothing to emulate.
  • Missing item (Score:2, Insightful)

    by steelem (694396)
    Customers.
    • Re:Missing item (Score:3, Insightful)

      by varmittang (849469)
      Um, that I think is covered under "something customers want" part.
      • Re:Missing item (Score:3, Insightful)

        by freshman_a (136603)
        Just because you make something people want, doesn't mean you automatically have customers.

        Making something customers want requires an understanding of what the customers want in the first place and good development to actually be able to make that product.

        Getting customers requires good marketing to get word out about your product and good salesmen to tell people why your product is better than the rest.
    • Amen, the best product in the world needs customers. Not to mention good marketing and sales. My companies salespeople are instructed to have integrity first. They don't get paid sales commissions but they do get bonuses based on the total company performance (actually everyone does) so the sales people don't have to lie to get customers and they don't have the opportunity to give us a black eye (based on our policy's). When you don't have sales/marketing people that are constantly in fear of losing their j
    • by Ohreally_factor (593551) on Thursday March 10, 2005 @03:56PM (#11902944) Journal
      Garage.
  • What about (Score:2, Insightful)

    by deangelo (127317)
    The summary seems to make light of the fact that a CRAP load of cash is still going to be needed?
    codohundo
  • by BWJones (18351) * on Thursday March 10, 2005 @03:22PM (#11902491) Homepage Journal
    This was the thing that absolutely amazed me with the startup fever in the 1990's. I had a couple of friends I visited in the bay area who were with startups that had essentially no existing product, infrastructure or long term plan. Yet, they had an idea which inspired VCs to pour money down their throats. It made for a surreal situation where twenty-somethings were driving Ferrari's and Porsche's all purchased on the value of their existing stock. The parties were amazing and the whole atmosphere was one of incredulity. Of course we all know what happened.

    I know one guy who bought a house, Lamborghini, Ferrari, matching Range Rovers for he and his girlfriend and loaded the house with furniture and electronics. The scary thing was that all of these purchases were made from loans based on the value of his stock holdings (because presumably he did not want to sell his stock). When the stock dropped through the floor along with everybody else, he had to come due. It was an absolute firesale and the only thing he kept was the big empty house, for which he had to struggle to make the payments. Moral? Live frugally and don't buy much on credit, especially leveraged against your holdings in your company.

    • by BWJones (18351) * on Thursday March 10, 2005 @03:31PM (#11902625) Homepage Journal
      I should also have mentioned. There is a wonderful documentary called Startup.com [imdb.com] that documents a small companies beginnings from obtaining VC funding to their rise and ultimate fall. It was an amazing example of a not atypical experience where a company was organized and obtained VC funding based solely upon an idea. They had no infrastructure, no network, no customers, no product. Yet they were able to secure a significant amount of VC funding. It's an absolute hoot to watch.

      • by synx (29979) on Thursday March 10, 2005 @04:02PM (#11903030)
        And they failed... but from my analysis of the film, not because they spent too much money. But because of the following reasons:

        - they overestimated the size of the market.
        - they overestimated the desire of their customers.
        - They failed to execute.

        I think these are the killer 3. I believe their plan was to have customers pay a small fee to pay a parking ticket online. If I already have to pay the city, why would I want to pay even more?

        Even if that was not the case, I still remember a key portion of the film where they realized their product was inferior to their competitor's website. This was the killer right here... Since the business model was to put forth convenience, if you don't have the best user interface, then you are screwed. I suspect the root cause of their problems in this area was a lack of skilled individuals who could bring this particular area (UI) to perfect/fruition.

        Good movie though.
      • My favorite part is in the movie is where they finish meeting with a VC and talk about their IPO. On the way to the hotel from the meeting with a VC they discuss going public and getting rich...and at this point they do not have a staff, a product or even 1 sale. Here they are talking about how pitching their company on the open market and it doesn't even exist yet! priceless
      • See, I take exception to this view of startup.com. The film makers went out of their way to paint this as another dotcom goldrush but when you look at it they had a solid idea, they had customers - thousands of them (right at the end of the film) - and they had the shitty execution that was "best practice" at the time.

        It's unfortunate how they chose to run that company. A four man startup with ten times as less cash would have done a much better job, but in terms of doing something that had value they were
      • In th end, they chose to make a movie about it all and rake in a few thousand dollars to cover some of their losses ... the first good business decision they made :)
  • ABC's of BS (Score:2, Redundant)

    by micromoog (206608)
    Most. Worthless. Analysis. Ever.
    • I disagree. Unless you've done it before or are far enough up the management food chain to undertsand the mechanics involved, I think very few people knew everything that was written here.

      The beauty of this article was gathering all of this information into one place, especially if you have no idea how to go about creating a successful startup (and, as history shows, most people don't).

    • Er, could you be more specific? I'd be happy to fix anything you think is mistaken. Could you give me an example of a sentence that's false? There are lots of sentences to choose from...
      • Re:ABC's of BS (Score:3, Informative)

        by micromoog (206608)
        Oh dear . . . I fired that off after reading little more than the first paragraph, which struck me as being similar to "To write the great American novel, you just need paper, lots of time, and the story of the great American novel", or "To make a great painting, you just need canvas, paint, a subject, and devastating talent".

        In reality, your article has quite a bit more content than that. My apologies.

  • by Anonymous Coward on Thursday March 10, 2005 @03:24PM (#11902520)
    First, I have excellent fucking people skills, I understand that people just want to be left alone and I didn't spend ANY money on that! Where is my friggin' BMW at?
    • by taustin (171655) on Thursday March 10, 2005 @03:41PM (#11902747) Homepage Journal
      First, I have excellent fucking people skills

      There's your problem. If you want to succeed in business, and make your millions, you need excellent people fucking skills, not fucking people skills.

      I hear Bill Gates gives classes. Pants not required. Or allowed.
  • Also requisite... (Score:5, Informative)

    by Faust7 (314817) on Thursday March 10, 2005 @03:25PM (#11902540) Homepage
    to start with good people, to make something customers actually want, and to spend as little money as possible.

    "Check with the Patent Office beforehand" should definitely be in there.
  • by MLopat (848735)
    Seems this guy has read one too many sarcastic slashdot articles where we all leave out that magical step before we get to PROFIT!!

    Step 1. Read slashdot
    Step 2. Take sarcasm at face value
    Step 3. Give this suggestion to people as to how to make a startup
    Step 4. ??
    Step 5. Profit!!

    Maybe he should include research into market share, how to get capital, how VC funding works, where to get these great people, etc. etc. The most important lesson in business came from Thomas Edison when he said "Get the money
  • by Tackhead (54550) on Thursday March 10, 2005 @03:26PM (#11902552)
    > to start with good people, to make something customers actually want, and to spend as little money as possible.

    I suppose that's one way to fill in the "???" that comes between "Obtain venture capital" and "Profit".

    All that stuff sounds like way more work than making your money the old-fashioned way, namely the Big Three of "ensure continuous availability of blowjobs to investment analysts responsible for pumping of stock after the IPO", "sell everything the day the IPO lockup expires", and "avoid going into debtor's prison for underpayment of AMT".

    I'll never understand this newfangled paradigm-shifting business models, but I'll give the article author this much: his newfangled method may be a lot more work than the traditional dot-com model, but it also sounds like a lot more fun.

  • by Fox_1 (128616) on Thursday March 10, 2005 @03:27PM (#11902567)
    was back during the bubble, I worked for a start-up. Note the past tense.

    and on the subject of NOTEs take a look at number 2 from his list of notes at the bottom of the article (I included only the first 2)

    Notes

    [1] Google's revenues are about two billion a year, but half comes from ads on other sites.

    [2] One advantage startups have over established companies is that there are no discrimination laws about starting businesses. For example, I would be reluctant to start a startup with a woman who had small children, or was likely to have them soon. But you're not allowed to ask prospective employees if they plan to have kids soon. Believe it or not, under current US law, you're not even allowed to discriminate on the basis of intelligence. Whereas when you're starting a company, you can discriminate on any basis you want about who you start it with.


    • by Gannoc (210256) on Thursday March 10, 2005 @03:40PM (#11902729)
      For example, I would be reluctant to start a startup with a woman who had small children, or was likely to have them soon. when you're starting a company, you can discriminate on any basis you want about who you start it with.

      "Hello, i'm Susan Johnson."
      "I'm going to call you Suzy."
      "Ummm, OK."
      "Actually, lets call you Suzy McTitsfull."
      "What??"
      "Are you a breeder McTitsfull? Because we're trying to start a business and we can't have your water breaking all over our nice Aerons."
      "That is none of your goddamn business."
      "Well, then we have something in common, because THIS isn't YOUR business, McTitsfull. I knew I shouldn't have interviewed some random gash. GOOD-BYE."

    • For example, I would be reluctant to start a startup with a woman who had small children, or was likely to have them soon.

      The only problem here is that it's not really gender-specific, but just that men seem to be more often willing to be bad parents and live at the office. Other than that, he has a point. I would've loved to have been involved in a small startup environment like he described, but I was engaged at 19 and had a son at 21; there's no way I could put in that sort of hours and live with mys
  • I thought it went something like this:

    1. Give something valuable away for free.
    2. ???
    3. Profit!
  • A good book... (Score:4, Informative)

    by creimer (824291) on Thursday March 10, 2005 @03:29PM (#11902591) Homepage
    If you want to read a good book on starting up a Silicon Valley company, you should read Startup: A Silicon Valley Adventure [amazon.com]. Of course, Jerry Kaplan ultimately failed in his startup; but most sucessful business people usually have four or five failures before getting it right.
  • by Anonymous Coward
    I am going to resurrect Gopherspace and sell it as the internet 2.

  • the secret (Score:3, Funny)

    by justforaday (560408) on Thursday March 10, 2005 @03:30PM (#11902609)
    to start with good people, to make something customers actually want, and to spend as little money as possible

    Ahhh, so that was the secret to Microsoft's success...
    • Re:the secret (Score:3, Informative)

      by netsavior (627338)
      plus they started out with Bill Gates' daddy's millions. And they didn't just buy DOS and re-sell it, their was a lot of work to be done to that Quick and Dirty OS before they sold it to IBM... I am not saying they didn't steal it, just that they didn't just re-sell it.
  • by dalewj (187278) on Thursday March 10, 2005 @03:33PM (#11902656) Homepage
    And what it took me was. commitment, good people, never sleeping, and a truck load of beer.

    But really, starting a company is the scarest thing i have ever done, I was lucky, im past the 10 year mark and past the daily effects of cash flow. which brings me to the secret of starting a business....

    CASH FLOW - CASH FLOW - CASH FLOWYou need cash to start, you need to sell the product, you need people to actuall pay you for it so you can build or sell more product, so people will at some point actually pay for it....... and on and on..

    It doesn't matter how good you or your people or your product or whatever. It matters how good you collect the debts owed to you so you can either reinvest it or pay off the bank interest rates.

    CASH FLOW - CASH FLOW - CASH FLOW
    Damn which reminds me, SEND CASH!
  • by gosand (234100) on Thursday March 10, 2005 @03:34PM (#11902662)
    There is one and only one thing that a startup needs. And that is the infamous: "???"
  • further reading (Score:5, Informative)

    by pHatidic (163975) on Thursday March 10, 2005 @03:34PM (#11902663)
    I highly recommend the book The Art of the Start by Guy Kawasaki, the guy who was responsible for the branding of Apple and making it into a cult company.

    From Guy's website:

    The Art of the StartWhen you get pregnant, you read What to Expect When You're Expecting. When you get laid off, you read What Color is Your Parachute?. When you get entrepreneurial, you read The Art of the Start.

    This book is a weapon of mass construction. My goal was to provide the definitive guide for anyone starting anything. It builds upon my experience as an evangelist, entrepreneur, and most recently, as a venture capitalist who found, fixed, and funded startups.

    The book is as relevant for two guys in a garage starting the next Google as social activists trying to save the world. GIST: cuts through the theoretical crap, theories and gets down to the real-world tactics of pitching, positioning, branding, recruiting, bootstrapping, and rainmaking.

  • by Minwee (522556) <dcr@neverwhen.org> on Thursday March 10, 2005 @03:35PM (#11902670) Homepage
    All a startup company needs to do is remember one thing: Make lots more money than you spend.

    A startup that always does that will probably succeed. How difficult can that be?
  • Smart people ... (Score:5, Insightful)

    by richg74 (650636) on Thursday March 10, 2005 @03:36PM (#11902683) Homepage
    From the article:

    When nerds are unbearable it's usually because they're trying too hard to seem smart. But the smarter they are, the less pressure they feel to act smart. So as a rule you can recognize genuinely smart people by their ability to say things like "I don't know," "Maybe you're right," and "I don't understand x well enough."

    This paragraph is one that some PHBs could study to their benefit. I once was associated (fortunately only in a consulting capacity) with a start-up boss who hired, as his marketing person, one of the most obnoxious people I have ever met. He (marketing guy) was constantly mentioning that he was a member of Mensa. For some odd reason, this did not go over too well with potential customers.

    When someone makes a point of telling me how honest he is, I make sure to count my fingers after we shake hands. My reaction to people who tell me how smart they are is similar.

    • When someone makes a point of telling me how honest he is, I make sure to count my fingers after we shake hands. My reaction to people who tell me how smart they are is similar.



      Yeah, when someone tells me how smart they are, I count my fingers afterwords, too, out of fear their stupidity might be contageous.
  • by Anonymous Coward

    This is what happens when the engineers fallacy [I can use logic, therefore I can understand any other subject by just applying logic] meets up with survivorship bias. A wiser geek than me expressed it as follows:

    People whose sense of self-worth has gone nonlinear, because when they look at their brokerage statement, they forget that, while skill was certainly a component of why they got to where they did, luck was also a huge component. Most of these people have never worked for a company that built

  • Hmm... (Score:5, Interesting)

    by Misch (158807) on Thursday March 10, 2005 @03:38PM (#11902708) Homepage
    Except thanks to the new bankruptcy reform bill passed yesterday [washingtonpost.com], it's raising the opportunity costs on small business owners.

    Often, even with a decent business plan, banks will require people to take out personal loans to get a small business started. With yesterdays new bill that benefits banks and credit card companies, people will have fewer opportunities to get out from the debt they created while trying to get a business off the ground.

    With less of an incentive to create new opportunities, I feel that this will hurt the ability of America to be a leader in "innovation".
    • Huh? You mean the banks want their money back if you fail miserably? That's just ridculous!

      Maybe this will make America a leader in personal responsibility. All we need is to revamp the rest of the code.

      (FWIW, I have a business loan I personally signed for in order to upfit my first office. You'd better believe I'm working my ass off to make sure I can pay for it)

    • Re:Hmm... (Score:4, Insightful)

      by Matt Perry (793115) <perry.matt54 @ y a h o o . c om> on Thursday March 10, 2005 @04:27PM (#11903355)
      people will have fewer opportunities to get out from the debt they created while trying to get a business off the ground.
      I'm not trolling but I don't understand this comment. Why is this a bad thing? If someone has taken out a loan then wouldn't the honourable and correct thing be to repay that loan rather than get out of it? Allowing them to get out of it sends the message that they aren't resonsible for the actions they take.
  • A book called 'The Art of the Start'. Written by Guy Kawasaki, who is (in)famous for being apple's chief platform evangelist back in the 80s.

    The book is much more detailed based on his experiences at Apple and as his job as CEO of Garage.com - a venture type firm which helps inventors do start ups.

    The book is much more detailed than the 'basics' that Paul outlines. It is essentially the old stock market "wisdom" - "buy low sell high". But this is not an operating plan, or a philosophy of starting a bus
  • by G4from128k (686170) on Thursday March 10, 2005 @03:39PM (#11902718)
    In particular, you don't need a brilliant idea to start a startup around.

    I'd like to second this idea and expand on it. Customers, especially business customers, prize consistent performance above uber-brilliance and cutting-edge innovation. They (and I) would rather buy a reliable product/service and give up on a few cutting-edge features (compare Google's plain text to Yahoo's overloaded graphics).

    Our company does well because we always deliver what we promise and try to under-promise/over-deliver if possible. The result is that we don't have to spend any money on marketing because referrals and word-of-mouth do the trick. The money not spent on marketing goes into doing a better job for our clients and so the cycle continues.

    Competence beats brilliance when the product or service is too important to risk on the unknown. I'm not recommending mediocrity, only suggesting the quality of execution is more important than brilliance of ideas. Of course, if you have both a brilliant idea that is useful and that is flawlessly executed, then you can't help but win.
  • by imaginaryelf (862886) on Thursday March 10, 2005 @03:42PM (#11902753)

    You need luck.

    Being at the right place at the right time to have the right things happen.

    Why is it that people attribte their successes to skill but their failures to bad luck?

  • Sounds like the old, iron-clad "buy low, sell high" stock advice to me. While incontrovertably true, it still doesn't tell you how you're supposed to to that.
  • by radiumhahn (631215) on Thursday March 10, 2005 @03:47PM (#11902829)
    I have made a successful start up and let me tell you this article is one scenerio out of a possible million.

    1. Work with honest people. Honest people won't be lazy slackers.

    2. Single founder is great if you can do it. If you are going to have multiple founders or board members the rule is "odd numbers" no tie votes. But honestly...if you can do it yourself you will be better off.

    3. Investors are a bad idea. They will be in your business in a bad way. If things don't work out and 9 out of 10 start ups fail ... the guilt will eat you alive especially if you go the friends and families route that VC push hard on beginners.

    4. VCs are morons. Look at their portfolios and they will expect to tell you how to run your business. They will have lots of highly educated people who have never built a successful business. VC dollars are the most expensive dollars you will ever find. You are better off not taking them... VCs set the objectives so high you'll pass up good ideas and plans for bad ones of bigger scope. VCs need to pay for their portfolios... honestly...look at those portfolios closely.

    5. 9 out of 10 Start ups fail... that means you are certain to have 9 times where you probably should close your doors... If you manage to stay open through them your business will likely have adapted to the market and demand and will be the one in 10 that lives...

    6. There are no rules...Its fear and greed and desire and comfort and popularity.... these are social forces no one can control or predict. Be diligent on open to adaptation. Thats the best you can do.

    • by corporatemutantninja (533295) on Thursday March 10, 2005 @04:30PM (#11903397)
      The basis of some valid points here; I particularly agree with #1. Integrity is underrated. But a lot of indefensible generalizations.

      For example, "VCs are morons" is rather sweeping. Obviously there are some staggeringly intelligent VCs out there. Perhaps you meant, "VCs are terrible investors", but that is of course also true only some of the time. Likewise "You are better off not taking their money..." etc. is hyperbolic. However:

      1. A lot of people jumped into the VC game starting in the late 90's who don't know what they are doing, so do your own due diligence. Many VC are former entrepreneurs/operators and can help you a lot. The best single thing you can do when choosing a VC is to ask for names and phone numbers for CEOs of ALL their investments of the last few years. Don't let the VC pick them for you; pick a few yourself and ask them what they think of the VC. Seriously...if you don't do this you're crazy.
      2. VCs are there to make money, not to make you rich. Hopefully those objectives will align but they don't always. For example, VCs will often negotiate for preferred stock so that if things go bad they get their money first. The entrepreneur thinks, "Hah! Even the worst case scenario in my business plan isn't THAT bad..." and signs the deal. Two years later, pain, anger, resentment, and knee-jerk posts to Slashdot. Lesson: go in with your eyes open.
      3. Raise money slowly. Raise just enough to get to the next milestone which gives you a much higher value, then raise just enough to get to the next milestone. This will both preserve your own equity and keep you focused. And try not to let any one investor get a controlling stake.
      And, by the way, the fact that 90% (is that all?) of startups fail does not mean you are "certain" to fail the first 9 times. You may hit a home run with your first company.
    • 4. VCs are morons. Look at their portfolios and they will expect to tell you how to run your business. They will have lots of highly educated people who have never built a successful business. VC dollars are the most expensive dollars you will ever find. You are better off not taking them... VCs set the objectives so high you'll pass up good ideas and plans for bad ones of bigger scope. VCs need to pay for their portfolios... honestly...look at those portfolios closely.

      Competent VC's can be valuable, but

    • by MSBob (307239)
      Bullcrap. The Nine out of Ten Startups Fail is actually an ubran legend. This statistic excluded all companies that got acquired by somebody bigger or merged with a competitor or split into unrelated branches. In reality around 50% of companies that got launched survive long term in some form of fashion. Only 10% of startups bring founders untold millions but in practice only about 50% are definitive failures.
  • missing step (Score:5, Insightful)

    by digitalride (767159) on Thursday March 10, 2005 @03:48PM (#11902844) Homepage
    I started a startup about a year ago, and I have as TF Article says:
    1. started with good people
    2. made something customers actually want
    3. spent as little money as possible

    But the missing step before profit is marketing and sales, which is not easy for engineers. I'd like to see a good guide on marketing and sales for a startup since we can't afford to spend a fortune on advertising.
    • Re:missing step (Score:3, Insightful)

      by radiumhahn (631215)
      Strangely... I feel there are tons of great easy affordable sales and maketing paths and not enough compelling products and services. (I'm also an engineer by trade)... There are so many software packages out there that I couldn't even imagine a person that would fork over money for them. I think its really hard to come up with a compelling product and to construct it well. Most "get rich" schemes exploit this. They give marketing and sales advice, but they leave the product up to you.
  • Graham writes that one of Google's three ideas was to provide "clean, simple web pages with unintrusive keyword-based ads."

    I remember in 2001/2002, when Google truly became a household name, there was little in the way of ad programs, and far fewer ads in their pages. And there certainly wasn't any of this going on [slashdot.org].
  • So, in other words, the key to a good startup is to start with good people, start with good ideas, start with a smart starting startup business plan, start but don't start too fast, start but don't start to slow, don't forget that starting a startup is the starting of a new startup life where you can start a startup and start it with starter-like people, possibly starting a jungle gorilla startup camp for major league starting pitchers on startup but turn the key otherwise the car won't startup and then you
  • age limit of 40??? (Score:4, Insightful)

    by Optical Voodoo Man (611836) on Thursday March 10, 2005 @03:57PM (#11902959)
    I thought he made some excellent points. You do need great people working on your team, a product that people want, and to spend as little money as possible. What I had an issue with was his cutoff age of 38.

    Who knows more good people? Someone who has had more time to meet them and see what they're like in the long haul and hard times.

    Who knows what's bad in the market? People who have had to deal with the products and use then. People who have used something for 1 month know how to dumb it down for the new folks, but long term users understand all of the tasks that really need to get done using the product. They also understand the market dynamics and product pricing better.

    Who knows how to handle money? If you had to give your money to someone to hold for you, would you pick the 23 year old or the 40+ year old? Like he said in the article, "If you try something that blows up and leaves you broke at 26, big deal." You know that the 40+ year old is trying harder and has more money management experience.

  • by sacrilicious (316896) on Thursday March 10, 2005 @04:00PM (#11902997) Homepage
    TFA:
    A lot of would-be startup founders think the key to the whole process is the initial idea, and from that point all you have to do is execute. Venture capitalists know better. If you go to VC firms with a brilliant idea that you'll tell them about if they sign a nondisclosure agreement, most will tell you to get lost. That shows how much a mere idea is worth.
    There is another interpretation of VC firms balking at NDAs: that they want to be able to think about the proposed idea in terms of other projects they're funding or considering funding, and perhaps even to implement the idea without the involvement of the people who came up with it.

    I know the founders of two startups, and some variety of this occurred in both cases. In one case the VC heard the idea and then brought in people from another venture he was funding who had a somewhat similar plan and basically said to my friend "convince me by arguing with these guys that your idea is better and that you can compete with their year-long lead." And then in the case of the second company, the VC ultimately funded my friend after merging them with another group that was seeking funding for a somewhat overlapping idea.

    An NDA wouldn't have prohibited the VCs involved from doing the things they did, it simply would have required the permission of my friends. Which of course they would have granted provided they felt it was in their best interests to do so. But they weren't allowed the freedom to make that kind of decision.

    Paul Graham says the reason VCs dismiss applicants who want NDAs is that it shows that the ideas involved are overvalued. Paul's explanation makes very little sense to me. What does make sense is that the VCs know they have a cartel, and that they can squeeze more money out of situations by forcing people to drop their drawers to even get an audience.

  • by sootman (158191) on Thursday March 10, 2005 @04:12PM (#11903160) Homepage Journal
    Dear Paul,

    If you don't
    mind, I would
    like to have
    control over
    how wide a
    column of
    text appears
    in my web
    browser
    window.

    Thanks,
    Teh Intarweb
  • by Peter Cooper (660482) on Thursday March 10, 2005 @04:12PM (#11903162) Homepage Journal
    It's about starting a company or business. A startup is just a young business. You start a business, not a startup. It's like saying "how to write a chapter" when you should say "how to write a book."
  • The fourth thing (Score:3, Informative)

    by delmoi (26744) on Thursday March 10, 2005 @04:15PM (#11903199) Homepage
    MONEY

    Or people with money you can convice will make more off your idea

    Or a bussness plan that dosn't cost much to start, for example a friend of mine started the site sinfulshirts [sinfulshirts.com] with just the money for a t-shirt press, and hours and hours of coding.
  • by lux55 (532736) on Thursday March 10, 2005 @04:53PM (#11903699) Homepage Journal
    In my experience, people prove to be the most critical and the most difficult part of the equation. Most people are not startup employee material. Most people, especially these days, want little responsibility, no risk, and high pay. My dad calls the high pay part an "entitlement attitude", but I couldn't tell you where the phrase originated. The risk part is understandable. The lower responsibility however, is better achieved in the same way as the low risk, by becoming another minute piece in a large enough institution that the bureaucracy adds a layer of padding between yourself and the exit ways.

    I definitely think it keeps things much simpler for a startup to be owned by a single person, it also creates a significant hurdle to people being dedicated to your cause. There's little for them to gain, much to risk, and the pay won't be great until you're cashflow positive somewhere down the road.

    The other problematic aspect of finding the right people is that most people lack the required drive for excellence. They want crude effectiveness, and nothing more. In a smaller company, you need more perfectionists, because there is no bureaucratic padding between your work and the customer, which means that things have to be done right the first time. From my experience, excellence is getting harder and harder to find, and I believe our societal and educational structures are the cause of this condition. But that's waxing philosophical, so I'll refrain, in this post at least. ;)
  • by cheekyboy (598084) on Thursday March 10, 2005 @05:55PM (#11904383) Homepage Journal
    To see a CEO walk away with 99% of the profits and dollars from a sellout is just utter evilness, if it could NOT HAVE been done at all with GOOD PEOPLE.

    What would one suggest as a minimum for the key engineer/developers? 10% equity? 20%? 1%?

    If theres 3 core engineers, then split 25% between them I say.

    • by darnok (650458) on Thursday March 10, 2005 @07:25PM (#11905194)
      Good luck!

      I've been on both sides of the fence here. I've been employed by a startup consulting firm, and I've been part-owner of a startup software company. I've worked for nothing for months at a time, trying to get a product out the door. I've also got a partner who's been employed by a startup tech firm for the past few years.

      Remember that, during those times when the company was bringing in ~$0, staff/employees were getting paid, their health insurance was getting paid, their mortgages and car leases were getting paid, their kids' school fees were getting paid, etc. The sole risk they were taking was that the company might not succeed, and they may need to go get another job.

      The owners were getting nothing coming in, but were paying staff anyway. How? Either out of their pockets, or via VC/angel cash that they have had to raise by selling bits of their company. The risk the owners have taken on is much greater; the company has to actually *sell something* for them to get even $1 in their pockets. This is worth repeating; if the company never sells anything, and lots of software companies founder on that one point, then the owners have essentially funded the lifestyles of the employees for the entire period of their employment.

      Next time you're commuting to work, look at the guy standing next to you and imagine what it would take to pay his salary out of your pocket for several months.

      I've got no problem with giving key people equity, but you're living in a dream world if you expect the proceeds from the sale of a startup company to be split on some sort of even vaguely equal basis.

      More risk = more reward
  • US LAW (Score:4, Interesting)

    by DarkSarin (651985) on Thursday March 10, 2005 @06:27PM (#11904714) Homepage Journal
    In footnote #2 he states that it is currently illegal to discriminate based on intelligence in the US.

    This is not exactly correct. It is illegal to discriminate on a number of things, but intelligence is not one of them--provided that hiring based on intelligence is related to the job and you can prove it. The other stipulation is that it cannot serve as a proxy for discriminating against a protected class. This is where many companies get into trouble.

    Can you use intelligence as a hiring tool? Certainly, but be careful! Don't be stupid, hire an expert (I'll take the job), and make sure that you aren't accidentally discriminating against a protected group (gender, race, ethnicity, religion, etc), and you'll be fine.

    All that said, overall, I think he's fairly close to the mark with his ideas. Essentially, people matter, money matters, and hard work matters. Like one person told me--kiss your family/SO goodbye and tell them you love them. Three to four years later, you can breathe again, and they'll get to know you again.

    There are other ways, but it takes a LOT of work.
  • by ducomputergeek (595742) on Thursday March 10, 2005 @08:01PM (#11905471)
    In the process with a couple friends starting a company for side work creating custom 3D logos from 2D in Lightwave and doing animations of those logos for web, presentaions, broadcast, etc.

    We all had mutual interests and people already owned all the needed hardware and software (which is proably about $25000 between the three of us). The other two have worked in video production for 5 - 8 years each and I've done some work in 3D studio and blende along with final cut pro plus I have 5 years of being a Unix system admin. So building a rendering farm is up my ally. Plus I also had the business skills from helping start 3 other companies, 2 of which saw sucesss.

    I preached to them two simple rules: start small and pay with cash. We started by doing free work for a couple larger churches for their sunday morning broadcasts on the local access channel. Then we saved money from our day jobs and filed LLC status and opened a business checking account. From the church job we got three referal jobs and things started building from there. Last week we placed an order for 5 Mac Minis to start our rendering farm all paid for in cash and next month we'll start placing 3 ads in the local business journal.

    Hopefully by this summer at least one of us can quit their full time job, although one is working contract basis now and not getting the hours he needs, and our goal is by March of 2006 to all be working full time for our business.

  • by cinnamon colbert (732724) on Thursday March 10, 2005 @10:48PM (#11906655) Journal
    There are many different types of customers, and many ways to sell to them, and many ways to do a startup.

    But, in the end, startup implies money in to generate sales in the future. So, you have to always be asking yourself, what problem am i solving for the customer, because if I am not solving a problem, why are they giving me money ? Once you frame the question that way, your options usually narrow.

    I do not know about software, but in my field, biotech, it is almost imposssible to overestimat the amount of work requried to actually bring a product to market - QC studies, labels for the boxes, checking that the plastic bags dont outgass something that discolors your product, etc etc. This stuff takes a lot of time and effort, and you need not brilliance but people who come in and do this 9/5 - dont knock those people, they make the world go round.
    If you want to sell widgets to customers, don't underestimate marketing. I know it looks stupid - and it is stupid. But , look in the mirror and ask yourself, why, REALLY why, did I buy the last five purchases for my computer, or stereo, or whatever. I think if you are honest with yourself, you will find that your vaunted "reasons", carefully thought out, ususally were framed and driven by those "stupid" marketers (eg, if you made a specification driven purchase, are those specs really relevant, or are they marketing constructs). Like any stero system costing more then, say 2 or 3 grand - you are not paying for performance, but for some sort of ego drive created and fed by marketing.
    It is a very humbling experince for a geek/techie/scientist/engineer to go thru this exercise.
    A good marketer also knows what people are buying and why, and what new features they will pay for. A marketing person tells you one good feature that someone will actually pay for, they have earned their money for the year.
    W
  • by obtuse (79208) on Friday March 11, 2005 @02:48AM (#11907795) Journal
    This is the second time in the last few days that I have heard the assertion that Google did "nothing brilliant".

    Then why the Scientific American article about extracting meaning from the structure of the web, when these guys were at Stanford? I remember reading that article & thinking "if this really works, it'll change everything when it comes out", and it did. Google won, in a blink. It wasn't their interface.* The meaningful rankings were the only thing that got me to move to Google.

    It was brilliant. They realized that in this morass of data that is the web, the structural information could be extracted & used. At the time, I'd been thinking about using cluster analysis & similar techniques from image processing to correlate pages based on content, but their technique was far more efficient & quite effective in making the web more usable. (Now, clusty.com do a cluster analysis based search.)

    It seems obvious now, but it was far from it at the time. Think Google did nothing special? Try searching the web with boolean only keyword searches for awhile.

    Brilliance doesn't require uniqueness. Some brilliant soul reading this comment might have thought of doing this with the web before. Since they didn't publish or execute Google gets the credit. For an overblown analogy, neither Newton nor Leibniz made the other less brilliant when each invented differential calculus.

    Paul Graham should know better.

    * The interface was a smart move. It was the first demonstration that they didn't have just one good idea. It was also the first obvious instance of their choosing not to be evil. They could've foisted flash or some other self-indulgent drivel on us.

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