Paul Graham Explains How to Start a Startup

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."

WRONG.

[Lumpy]

The three things you need for a startup is not what he says...

it much simpler....

MONEY, Sales Ability, and competent management.

Money is the absolute most important thing needed. Without it there is no startup.

and THAT is the hardest thing to get.

Make sure you live frugally!

[BWJones]

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.

Also requisite...

[Faust7]

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.

A good book...

[__aaclcg7560]

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.

I have done it and survived

[dalewj]

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!

further reading

[pHatidic]

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.

Why VCs don't like NDAs

[sacrilicious]

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.

The fourth thing

[delmoi]

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.

Re:Man last time I read something this positive

[bugbear]

A US Supreme Court decision in 1972 (I believe) said that you couldn't make hiring decisions based on general intelligence, but only on the specific skills needed for the job. So Google can give applicants programming tests, but not IQ tests.

Re:Also requisite...

[Anonymous Coward]

Um, no. It's a terribly bad idea to do a patent search to see if your product infringes any patents that already exist. Doing so opens you up to additonal liability that wouldn't exist if you hadn't performed the search.

Re:Make sure you live frugally!

[WasterDave]

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 right on the money.

Dave

Re:the secret

[netsavior]

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.

Re:Make sure you live frugally!

[Anonymous Coward]

Yeah, they actually had the idea, had the window of opportunity...and completely blew the implementation. That scene where they're testing prior to the rollout and one of the co-founders realizes it's just complete garbage was priceless...

The funniest part of that movie is the guy they bought out for $800k in the begining is the one who profits the most (well, other than the offshore consultants who sucked all the money out of them for some horrible software).

Re:ABC's of BS

[micromoog]

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.

Re:Man last time I read something this positive

[Anonymous Coward]

Perhaps you are refering to the 1971 case "GRIGGS v. DUKE POWER CO. [findlaw.com]"

That case does not forbid discrimination on basis of intelligence. It forbids discrimination on basis of a generalized intelligence TEST , which is a very different thing. Many huge employers, such as the military and General Motors, have collected such test data on large numbers of people and tracked the subsequent careers, and I would be very interested in any data showing any correlations at all. (As far as I know, there are some weak correlations with High School GPA and with SAT scores. There are none for any large sample size that correlate general career success with much else; in particular, finishing college or college GPA.)

Even the military's vocational aptitude test are pretty much correlated with basic job performance only, and not promotion, re-upping, and a unit composed of higher scorers is not very much more likely to achieve overall goals.

These are all things that we all know anyway. Mensa style tests measure the ability to do mensa style tests. There are plenty of homeless mensa members.

Organizations staffed by career managers have a tendency to gravitate to arbitrary measures of individuals. Take the ancient Chinese empires which promoted clerks based on memorization of large amounts of poetry; the British class system with it's meaninglessly precise formulas of parentage, economic status, military rank, age, etc; and modern "professionally managed" corporations with their intelligence tests and Briggs-Meyers nonsense. Perhaps any arbitrary number that can be ascribed to a person insulates promoters from the consequences of mistakes in promotion ?

If your future is in any way intangled with a larger organization of people, such as a medium sized company or academic institute, I urge you to read The Organization Man [upenn.edu] by William Whyte. (Chapter 16, "The Fight Against Genius", will be especially interesting to hackers.) Whyte talks about the Meyer-Briggs test and intelligence tests, and how they are abused, and the book includes an appendix which is a tutorial on how to cheat on a personality test to make yourself look more attractive to a large organization.

But back to discriminating based on general intelligence. Nothing in that decision prohibits you from discriminating on the basis of tests that you can show have a correlation to success, or even on your own perception of general intelligence, with the exception that if your general perception of intelligence shows a high degree of correlation with race, sex, or religion, you may be in trouble.

As a postscript, there's a general rule of thumb here, which the legal profession in it's characterist obligueness won't directly articulate. As long as you are still running off of your own money, and unincorporated, you are fairly insulated from these issues, as long as you don't behave outrageously. As soon as you take that priviledge of the protections of incorporation, you can expect to pay for that priviledge by living up to certain community standards. It is that acceptance of the corporate priviledge that makes these regulations seem acceptable to even a radical Individualist like myself.