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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."
from a successful venture capitalist.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
Customers.
The summary seems to make light of the fact that a CRAP load of cash is still going to be needed?
codohundo
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.
Do not look at laser with remaining good eye.
You have to make something that customers want, AND be able to supply it for a profit for what they are willing to pay for it.
That's another little detail.
The party of stupid and the party of evil get together and do something both stupid and evil, then call it bipartisan.
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.
Visit Jonesblog and say hello.
Most. Worthless. Analysis. Ever.
Ummm, shouldn't there be a good idea somewhere in there too?
I'll turn into a supernova and burn up everything. Well I'll turn into a black little hole and you'll turn into string.
1. Tell a random Venture Capitalist about your new Intarweb Cyberspace killer app startup.
2. ???
3. Profit!
Wait, this isn't 1999...
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?
Perhaps within the bounds of the law?
Perhaps ethically sound?
And since a startup that succeeds ordinarily makes its founders rich, that implies getting rich is doable too.
Perhaps at a profit?
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.
The coolest voice ever.
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 first!"
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.
Starting a company isn't always so easy, and following the plan is tough too.
CC
CKSCIII
How about a competitive advantage? You know, people choosing your product or service because you do something better or cheaper or quicker or sleeker...
One man's Funny is another man's Offtopic.
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.
The rock, the vulture, and the chain
Make sure a big customer doesn't FUCK YOU.
File UCC papers on any order that you can't afford to lose over the civil matter of customer refusing to pay you. It only costs a few bucks and changes the rules so that you are still the owner of unpaid goods as opposed to the much less secure position of 'creditor'.
BTBF (been there been fucked)
I started a site http://www.omninerd.com/... can you guess this startup's inspiration? I guess the big question is, what if your inspiration doesn't "suck?" Is there hope for lil' ol' me?
Mark A. McBride -- OmniNerd.com
If you ask for just a few million, forget it.
If you waste time saving small change, forget it.
The VC will want to know you're paying for the
best management you can get. The VC will want you
to demand the money you need to do things right,
without a chance of running short.
I thought it went something like this:
1. Give something valuable away for free.
2. ???
3. Profit!
If you want to read a good book on starting up a Silicon Valley company, you should read Startup: A Silicon Valley Adventure. 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 am going to resurrect Gopherspace and sell it as the internet 2.
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...
I'll turn into a supernova and burn up everything. Well I'll turn into a black little hole and you'll turn into string.
1) Don't need good people, you need either great marketers or great workers (marketers are better)
2) Need customers that can't tell the difference between whats good and whats bad.
3) Sue people so you don't have to make anything, thus saving money
4)??????
5) Profit!
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The reason VC-s don't sign NDA-s is not because the ideas are worthless. They probably read business plans of a dozen companies with overlapping ideas and don't want to get burned.
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!
There is one and only one thing that a startup needs. And that is the infamous: "???"
My beliefs do not require that you agree with them.
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.
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?
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.
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 a good product and failed anyway. They don't have any understanding of the fact that skill is often necessary, but always insufficient. They believe their hype.
-- ac
if you've been around silicon valley, money is not all that hard to get, compared to getting/developing a product that actually *deserves* to be funded.
Except thanks to the new bankruptcy reform bill passed yesterday, 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".
--You will rephrase your request for me to go to hell. Goto statements are not acceptable programming constructs
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 business, etc.
Of course I haven't read the essay yet, but if I read the essay I wouldn't be able to post early enough so my comment would be read by a reasonable number of users. Ah, the slashdot paradox.
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.
Two wrongs don't make a right, but three lefts do.
to start with good people, to make something customers actually want, and to spend as little money as possible
Now I know what my problem was! Stupid me! I spent as much money as possible!
Next time, i'll skip advertising and promoting and I will not pay any overhead bills at all.
My cousin had a failing business for 10 years. His wife is a lawyer and paid the bills and covered his losses the whole time. Now in year 11 he has enough customers to scrape up a living. You have to hear this guy give other self-employed people advice. Sounds just like this fool.
1. Start a startup 2. ???? 3. PROFIT!!!!!!
This slashdot-related signature is a stub. You can help kihjin by expanding it.
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.
"Hardly used" will not fetch you a better price for your brain.
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.
Program everything in LISP!?!?!?
http://martinigirls.comPeople always love pictures of beautiful nude women. Can't go wrong there.
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.
Open Source is Common Sense: http://groovix.com/
about checking the oil and water.
Free Firefox news reader.
These guys all have the same attitude:
"I did 'X'. I was successful. Therefore, in order to be successful you must do 'X'. Be like unto me!"
If you can pull that one off, you may as well just play the stock market. One rule: buy low, sell high. How can you lose?
Is it just my observation, or are there way too many stupid people in the world?
"Spelling-it-at-ya" should read "Spelling-it-to-you".
Furthermore, "them start-ups" should read "those start-ups".
Start learning.
You spell as well as the
world's most dangerous and inarticulate "leader".
Regards,
Kilgore Trout, CEO
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.
I Want To Believe
And that's just for starters!
The world's burning. Moped Jesus spotted on I50. Details at 11.
Sorry, I'm employee #1 in a successful startup. We didn't have money. We did have the last two, but the reason we succeeded was because we also had the three things that Paul talks about.
But Paul says it much better than I can.
It slips my mind.
Having to go to a VC is not always a good thing. Picture getting a home loan only your bank owns a percentage of whatever you make (or lose) and your loan officer sleeps in the bedroom while you sleep on the couch.
In future episodes we will teach you how to pick a pickup, fix a fixup, hang a hangup, and screw a screwup.
Sheesh, evil *and* a jerk. -- Jade
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.
Comment removed based on user account deletion
In my day we didn't have *three* things to make a startup, we only one thing, would do it with just that one thing...in the snow..while walking bare-foot...uphill...both ways. So there you young punks.
In fact, we didn't call em "start-ups", we called them just "starts".
*click**beep**beep* Scotty, One to Mod up!
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.
- First they ignore you, then they laugh at you, then ???, then profit.
If you fail at your start-up, you will suddenly have a new level of appreciation for a stable, boring job, as well as your upper management's business issues.
The author misses one crucial factor... investors tend have a bit of a "God Complex". They think that they know at least something about everything, and they almost always generalize from their own specific experience.
:)
I remember pitching my startup to a group of investors. I can confidently say that my project had better prospects, and was a better business concept, than what they ended up investing in - something called gardensupply.com, or grass-seed.com, or some other silly name.
Did it make sense to ship really heavy stuff, like dirt, via expensive freight carriers? To them, yes - they all lived in the burbs, they all had huge lawns and gardens, and they all had lots of money. So for them, paying more for shipping than the cost of a product was a no-brainer.
For the rest of the world, it made no sense whatsoever. The company folded in months.
But then again, mine folded in just under 2 years, so what the hell do I know
At any rate, the point is that unless you can make potential investors understand your concept within their narrow, distorted worldview, or unless you can find an investor with an understanding of what you're trying to accomplish (rare), you aren't going to get funding.
He was someone who apparently could not grasp the concept of "overstaying one's welcome". He used to show up unannounced at fellow mathematicians' houses, staying for weeks on end with no apparent plans of leaving, and even inviting other mathematicians over so that he could do math with them. He once even asked the wife of a good friend (who also happened to be a mathematician herself) to cut his toenails for him because they were getting too long. She refused.
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
Dear Slashdot: next time you want to mess with the site, add a rich-text editor for comments.
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."
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 with just the money for a t-shirt press, and hours and hours of coding.
ReadThe ReflectionEngine, a cyberpunk style n
Wow.
1) the right people
2) a needed product
3) thrifty spending
I never would'a thunk it. Many start-ups have excatly that - and fail - because of underfunding when it comes time to market.
These 3 things don't make critical mass. 2/3 of any budget unfortunately goes into promotions.
/\/\icro/\/\uncher
I agree, especially with the marketing and management. For a small business to succeed, it's very important to actually be able to sell the product. Realistically it doesn't have to be a product that someone actually wants for them to be convinced that they want to buy it.
I used to work for a startup company. I was invited to work there by the CEO shortly after I got my comp-sci degree. The CEO was a friend of mine from a previous workplace. We were building an application for a niche market of government accounting employees.
We had fantastic people and it was a great place to work. Those running and funding the company had all come out of government accounting. They knew exactly what was needed, they were good at communicating it to us as programmers, and we were developing a really good product that would've been very useful, particularly for governments in small countries who didn't have a lot of money to spent on massive infrastructures. To top it off, we definitely weren't spending a lot of money, and I can vouch for that.
Where it fell over was that although we had a very experienced government accounting consultant flying around the world selling our product, the competition had more successful marketers. (It didn't help that our guy was having health problems.)
I have to admit that it was very frustrating to see the marketing people from SAP go to these small governments and convince them to spend ten times as much on a dinosaur of a product that they had no need for and for which they'd be required build their own system on top of all over again, anyway. What we had that essentially did exactly what they really needed immediately. SAP's entire marketing strategy was based on Fear, Uncertainty and Doubt, and it worked for them.
Our company ended up merging into a slightly larger company out of town. I left as part of that agreement, and went back to university to do an MSc, which admittedly I'd also been quite keen to do when I'd finished my earlier degree.
I hate marketing, personally. I hate selling people things that I think they don't need, and I hate asking more money for something than what I think it's worth to me. This isn't realistic in most of the real world, of course, which is why I'd make a bad marketer, and this experience just reinforced my view of it. Our marketing guy was very good, but SAP's was better, and they also had the benefit of being from a big company and being able to spread FUD.
I couldn't fully stress the importance of having people in a small business who are really good at marketing, though, if you're not. In today's world, being able to actually sell something is more important than making something useful.
I've spent most of my adult life doing startups, most of the smaller sort, but increaingly large over time. Y'all remember LinuxPPC, of course. More recently, I started a newspaper called The Wisconsinite, which I was the sole commander of. I had this cranky editor who had weight of his own, and that played a role in the functioning of my little LLC.
;-> But I'll be much more prepared to succeed with Wisco 2.0.
One lesson for next time around: I'm running it myself, goddammit. Partnerships, be they real or de facto, are very very hard. My editor was a wonderful editor, but he doesn't have my business instincts. I shouldn't have given him so much weight in that department. But it's all good; I know myself better now.
If nothing else, it served as the most expensive personal ad in the world, and I met a wonderful woman through it.
And that's my lesson: When you plan your startup, plan to succeed. That's deeper than you might think. If your business does not make money, it will fail. If you do not have the ability to pay your peeps to do the necessary work, it'll fail.
That said, I don't consider any of my four startups failures. I'm a much better person as a result of each of them. But the plans at the core of them were not set up to allow for success.
-- haaz.
Are you going to the LINKS meeting to pitch Arc?
One wonders, with the hint of a tease, whether you'll get it done before Perl6 or C++0x...
Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
For example, dating sites currently suck far worse than search did before Google.
And all this time I thought it was because only the sweet-and-sour smelling, star trek fanatisizing slashdotting dweeb crowd used them!
I absolutely agree, but I'd say besides the dogged persistence, your other basic requirement becomes *quality employees*.
By this, I mean people who truly share your vision of growing the business.
I work for a guy who did an on-site PC service/support startup business. In fact, I was really only his 3rd. employee (after a part-time guy he hired for a while, and then let go of). I was very interested in this business, because it was similar to one a friend of mine started almost 10 years ago - but which unfortunately didn't make it. (I think it was an idea before its time back then... Not enough people relied on their home computers and were willing to pay someone to fix one for them on-site.) I always treat my job like I'm the business owner, and it apparently shows. (People call in all the time, confused, assuming it's my company - and wonder who my boss is!)
Sometimes I even stop and ask myself why I'm working so hard for relatively little when it's not even my own company, but then I remember that this is what I really wanted to do for a living. I spent years trying to find somebody actually doing it right. I don't have the money/resources to start something like this on my own, but I do have the know-how and experience to do the job well and please customers. So for me, it's worth doing my best to make sure this place sticks around!
Our problem now is, we've gotten to where there's too much work to do, and we need another full-time technician. But the people who keep applying for the job are too inexperienced, coming from other chain-store on-site places that do inferior work, or just the type of folks who only care about making a buck. (Sorry, but in this business - it just isn't smart to piss off a new customer because you nickel and dime them on every last minute you're out there. If they have an old PC that was barely worth paying your hourly fee to fix in the first place, you have to be a little flexible. Round down your time spent out there, etc. - so they'll be satisfied, and will call you again in the future.)
Nobody's gonna get rich doing this kind of work anyway. It's something you have to do because you really like driving around, seeing something a little different all the time - and get some satisfaction out of helping people out. I just don't know if we'll find other like-minded people to make this thing grow further, though.
The only kind of software you can build without studying users is the sort for which you are the typical user. But this is just the kind that tends to be open source: operating systems, programming languages, editors, and so on.
I guess most of you already knew that - I'm quite certain that many people get involved in an Open Source project because they need whatever that project is doing.
Maybe there are a few that are in it to learn, or coding for coding's sake
I just wish there was someone that had a similar view to mine on Desktop Usability, Compatibility and all that which would make me actually use linux (as opposed to boot it once in a while to tinker as a hobby, and then it's back to Windows for work and fun)
There are three kinds of lies: lies, damned lies, and statistics.
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:
- 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.
- 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.
- 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.Actually, I was trying to be Insightful, not Funny.
On another page ( http://www.paulgraham.com/icad.html), Graham writes:
If you start a startup, don't design your product to please VCs or potential acquirers. Design your product to please the users. If you win the users, everything else will follow. And if you don't, no one will care how comfortingly orthodox your technology choices were.
I think a lot of people want to make more of this article than he made of it. It's just saying that business is pretty simple: figure out what you can do, figure out who wants it, do it. Many posters have worried about the VCs; some have sagely advised that VCs are best avoided; none have noted that if you're willing to eat a bit of risk yourself you can factor out a lot of the capital. You don't have to pay yourself until profits come in; it all depends on what you're trying to do.
Now, whether the article needed to be as long as it is to make that point is open to debate.
(This essay is derived from a talk at the Harvard Computer Society. It's not meant to be complete; I skipped some topics I've already written about in "How to Make Wealth," in Hackers & Painters.)
Translation:
P.S. The Harvard Computer Society is a joke.
Most techies suck at sales. You need about 5 sales people per engineer. So if you are a techhead, find at least two salesmen to go with you, otherwise your venture will never work.
You must be an idiot. The essay is about starting your own start-up but Paul Graham wrote it so it must be about Lisp. He only mentions Lisp in passing, explaining his desire to program in Lisp was his motivation for doing his startup.
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.
putfwd.com - 1GB Free file storage with a twist
Isn't this the premise of any good business? I have never heard of anyone having a successful anything that spent too much money, had shitty people working there, or sold something customers didn't want. Well except for Microsoft.
http://jayceecorder.blogspot.com
If you are hired for a job, than you can't be a lazy slacker at your job and still be honest to your employer.
Exam 4/C again. Maybe I'll do better this time.
The technology company three partners and I started three years ago is now making us, if not rich, then at least comfortably well-off.
Our core principles are similar to Paul Graham's. Our people are simply the best to be found; we test and interview extensively. We are focus on creating software that rapidly provides financial benefit to our customers. We are very careful with our money and we've created a business culture that reinforces this.
I disagree only a little with Graham. Where he thinks "it's wise to take money from investors" we've grown from working out of our basements to running a thirty person company without taking a dime of investment money from anyone. The total out-of-pocket investment was a few hundred bucks.
Managing money has been very, very important. Investors would come in with an exit strategy, probably wanting to regain their investment plus a heaping profit within the first two years. If we had to operate with such a short-term mentality our company wouldn't have made it.
I absolutely agree with Graham that it's important not to spend money. Our facilities are as cheap as possible without affecting the quality of the work. We pay our employees well and we also share profits with our employees, so everybody has an interest in keeping costs down. The other day a large team was working late and asked me if we could order pizza. I asked, "How much of your profit sharing do you want to spend?" The team thought about it and decided they'd order from the cheapest place around. I love that story, because it shows why we've been successful and will continue to be so.
Spend money on the things that it makes sense to spend money on. In our case, that's comfortable salaries for high-end talent. Tighten your spending on everything else.
(Posting anonymously because some of my competitors would turn this kind of post against us.)
He keeps mentioning online dating services. Sounds like he's even a bit bitter about them. Maybe he's having trouble in the dating department!
But the biggest problem people have is they count on luck and yet fail to even roll the dice!
The thing is if you don't try, you can't succeed or fail. If you try and work hard, you have a possibility of success.
If you consider the "game" of starting a company, there are these rules:
(1) It takes time and some money to start a company.
(2) The company may fail or succeed after a period of time.
(3) If the company succeeds, you are a multi-millionaire, and potentially a billionaire.
(4) If the company failes, there are no negative impacts (you already spent the time and money, right?)
This set of rules leads me to the following algorithm for _guaranteed success__:
(1) Don't borrow money to start your company. Use your own money, and spend as little as humanly possible. (Corollary: Make sure you get money before you start to spend it!)
(2) Put all the effort you can while you have the time.
(3) If you fail, try again.
This will lead to inevitable success.
I am still young yet, and I've yet to make the full plunge. My goal right now is to earn a crapload of money and pay off my high-interest debt. I am also looking for some guaranteed money-making side jobs like consulting that are part-time yet good pay. My criteria for a company is that I can develop the initial product while I am working and I can start selling it before I've made the plunge and quit my day job. That way, my company will be funded with the cash it generates.
I don't see how VC enters into the equation anywhere. Plus. I don't have to borrow money or do anything where business failure has any impact on my day job. If worst comes to worst, I can always fall back on my day-job and still feed my family.
The radical sect of Islam would either see you dead or "reverted" to Islam.
This is obviously a rather well known thing but the ultimate form of advertising is word of mouth. Once you have the product, and a product that people will want, appreciate and purchase, they _will_ tell their friends.
There is one area you can go wrong though and that is by being impatient. Word of mouth will not bring about results immediately. Normal (read expensive) advertising will, but it is not guaranteed that your product is ready to be advertised. Word of mouth will only spread when the product is ready so while you are waiting you can tune and perfect your product and delivery methods.
Two quick examples are Google and Panic. Google of course appeared simply because people told each other. Phrases like "I will be right back, just Googling it" are what you want to hear. Panic, a Mac shareware house and a very successful one at that, have never advertised but their devoted fanbase is only too happy to advertise for them.
Too bad he doesnt have any tips for designing a vapour language.
The only people afraid of that are people who think they'll only have one good idea in their lifetime.
ReadThe ReflectionEngine, a cyberpunk style n
I'm not a Christian and I don't intend to bring religion into this proper, but I recall reading something once about what was actually meant by the Bible's prohibition against "swearing" (or "taking the Lord's name in vain"), which seems relevant here.
"To swear" is not "to say a bad word". To swear is to make a promise. The reason why it was prohibited to "take the Lord's name in vain", or to swear in the name of God, is that by doing so, you have effectively put "the name of God" (whatever that means, but it's something valuable to Christians) on the table as a gambling chip.
When you make a promise, which is really no different from a guarantee, you are taking a gamble. To say "I promise I will [Foo], or else, [Bar]." is to say "I bet [Bar] that I can [Foo]." If you can't [Foo] as you promised, then you owe [Bar].
You don't know the future. You don't know if you will actually be able to [Foo]. You are wagering that you will be able to [Foo], and offering [Bar] should you fail. In the case of bank loan, you are usually promising that you will repay the money, or else, they get something like your house.
But sometimes you shouldn't be allowed to do [Foo] or [Bar]. If I promise to kill someone for you, or else if I can't, to kill myself, should I be held to either of those promises? If I promise to give up my house and all my worldly possessions and leave myself and my family to starve on the streets so that some lending company can show better numbers on their books that year, should I be held to that promise?
Don't get me wrong, I'm all on your side about honesty in borrowing. I'm pathologically aversed to debt, have never owed anyone anything and never intend to. I count debt into my net worth, so if I've got $5K and owe $3K I've really only got $2K and would rather pay off my debt and have my balance reflect that $2K I've really got. And if I ever owe more than I've got, then I have *LESS THAN ZERO*, and I'm fucked unless I'm fortunate enough to be able to recoup that somehow. But none of this changes the fact that sometimes it's just not possible to make good on a promise. You often can't do [Foo] no matter how much you swore that you would, and sometimes you can't even do [Bar] either.
This hasn't been very well written, but the point I'm making is that all lending, borrowing, promises and guarantees, are all wagers, gambling, risk management. The future is unpredictable and you've got to account for that sometime, you will lose. The only safe bet is not to gamble at all - don't make promises, don't go into debt. Unfortunately no man is an island and we can't be our own self-sufficient universes, so we will always be required to owe or promise some things. But it's best to try to minimize that.
This is why the debt-happy modern American society disappoints me so. I'm expected to go into debt in order to obtain some basic services (like phone), or else to pay MORE to avoid that. Can't I just give them the money now up front? Wouldn't they prefer that? I know I would rather have money now than later.
(Unfortunately, they'd rather you owe them, so they have a means to control you).
-Forrest Cameranesi, Geek of all Trades
"I am Sam. Sam I am. I do not like trolls, flames, or spam."
My company (see my URL) is a startup. We have 9 employees and no venture capital. It's lots of fun!
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.
Liberty freedom are no1, not dicks in suits.
The Five Lessons
The E-Myth
How to Make Your Business Run Without You
I briefly worked as a contractor for one of those ex-Microsoft-employee dotcom startups. They were developing an IM client. Offices on the top floor of a Seattle highrise, beautiful wraparound view of the city and surroundings, nice office furniture, company-paid parking in a lot down the street, everything but a free lunch. The high-energy CEO wore suspenders and had an unbelievably gorgeous babe for a secretary/assistant.
They got acquired just as my contract was ending, but I don't think their product ever saw the light of day. I always wondered what happened.
What would you say... ya do here, at Initech?
I already told ya! I have people skills. I'm good at dealing with people. Can't you see that?!? What the hell is wrong with you people?
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.
"We don't know what we are doing, but we are doing it very carefully,..." Wherry, R.J. Personnel Psychology (1995)
That's just generalisation. Plenty of nerds are unbearable when they're right, and others just don't like what they hear.
I'm sure my last boss thought I was unbearable when I told him his salesperson's opinion on technical issues of web design didn't matter. But it was true, and he probably knows it now every time he drives past his disused office.
Lots of people's reactions to RMS spring to mind as well: I haven't heard RMS say anything wrong yet, but people get really riled up about what he says just because they can't face the effort it takes to do the right thing.
Having wads of cash is not a good indicator of success. Less money makes for better focus. Focussing energy and resources is far more likely to be successful than trying to be all things to all people (something that is more likely to be attempted with huge resources).
Engineering is the art of compromise.
How profound... and circular. That is essentially true by definition. Companies do not necessarily make their founders rich, but founders may not stick with a business for long if it doesn't make them so. In fact, the vast majority of startups FAIL.
There's a sense in which it's like saying, "Here's how to write a best-selling novel: First, be very talented. Then, have a terrific story. Finally, write it in a skillful way."
Because you may want to bring customers into your office, and zoning laws may prevent operating such a business from a home. Or, maybe you want to hire employees and don't want them in your house.
Why tie up money in a downpayment for a house+office instead of investing in the business you are trying to grow? Or if things don't go so well, the office lease ends while the mortgage is still there.
If you're going to grow a business, you have to move it out of the basement/garage/kitchen. It isn't a waste of money.
We're living parallel lives in a lot of respects.
:)
I got tired of working for The Man, even at good pay, and so I just quit. I had enough money in the bank from living within my means so I could screw off for a year, possibly two, before I had to Go Back To Work.
In that year I more or less taught myself PHP and mySQL. I wrote an application, a web service basically, that fulfilled a need for a specific group of people -divorced or divorcing parents- and offered it via a yearly subscription. It's built on 100% open source and runs on an Apache/Linux box.
It's just over 2 years old now, and it's pretty much paying my bills. I live in a house, not an apartment, but other than that I could have written what you wrote.
I'll be offering a pro version to parts of the government and social services organizations soon, and there are other niches that it looks like it could fit into, so by and large I don't think I'm ever going to have to Go To Work again. I work out of my home and love it.
I like to think of this as proof that Open Source *creates* jobs and stimulates the economy, no matter what that toxic piece of crap Steve Balmer claims. I know it for a fact- I'm livin' proof.
You know, I deliberated over posting the URL to my site, but a slashdotting would probably hammer my site into the ground like a pushpin.
(It's a little-known fact that a Full Slashdotting carries enough energy to throw a pound of bacon into the asteroid belt.)
People who think like you should not create startups.
With that kind of statement it tells me you're not a believer in yourself, that you feel success is based on chance, rather than the real attributes that count, such as creativity, execution, and vision.
eTrade SUCKS
A "big huge can of gasoline" isn't required to start a fire; it just makes the process a lot more fun.
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
I would add to Paul's list, "ignore feedback that discourages you about your idea; build a prototype as quickly as you can no matter what people say about the idea."
1) look at the integral
2) scratch head (or balls)
3) write down the symbols that, when you take the derivative, give the integral
Compare also to Joel of Fogbrain Software, and his guides on how to clean up old code, for example -- it consists of 1) have a lot of time, weeks and weeks, in which you have to do nothing and 2) write code that does the exact same thing but is better organized.
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.
"The problem with socialism is eventually you run out of other people's money" - Thatcher.
Here's a few simple "rules". (after 25 years of experience and still not bald..or bankrupt)): 1.) If everyone tells you "it's a great idea - you'll make a million" - forget about it - your business idea is a lost cause. If everyone you tell about your business idea - gives you a funny look - then it's worth looking into and maybe even starting (if you fulfill the other rules below.) 2.) A sure fire way to go bust is to do a fancy business plan complete with columned green accounting paper and then get a bank loan. Bank people know diddley-squat about starting and running a business - but will be more than happy to take your home when you default on the loan. A business plan comes later...much later. 3.) If your reading this or the other comments here - you probably shouldn't be starting a business ;) Do you have "tradeskills" - don't know what tradeskills are? - read "Running A One Person Business" (Rasperry & Whitmyer) - or hire Whitmyer.
4.) Time to do market research on your business potential with 12 people from your market niche. If you have competitors - don't even bother with the market research - keep your salaried job.
5. Advertising doesn't work - but publicity and word of mouth does. If you think advertisng works - keep your salaried job. Do know what a "hook" is? If not - keep your salaried job.
6. Figure out your bottom line for personal monthly (or yearly expenses) - don't hire any staff to begin with - and laugh at people who talk to you about venture capitalists.
7.) And in 5 years if you are still in business - you'll know what you did was right.
In the heady days of the dot.com boom, our man in LA wanted to create an incubator incubator for creating startups. Typically at these meetings we'd play buzzword bingo. And they fed us lunch once a week. Those days are over. All I can say is that Mr. Graham is about 5 years too late. Our memories aren't that short. Give it another decade or two and all that is old and useless will be new and different again. And the old rules won't apply any more.
"You'll get nothing, and you'll like it!"
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
as you will certainly end with one.
Start in the early 1990s. ;)
To me the article seemed sloppy. Ideas may be valueable. But the average idea is not. There's a cost associated with signing a NDA, and that cost may be higher then the average idea. If you don't know what an idea is, you can only assign it average value.
The biggest cost of an NDA is liablity. If you sign an NDA, then find out the idea is close to something you're already working on, you could get suied. And lets face it the average idea is crap.
ReadThe ReflectionEngine, a cyberpunk style n
I know there's probably some other comment applauding this statement, but I just have to get how awesome this is out of my system
Some believe only business people can do this-- that hackers can implement software, but not design it. That's nonsense. There's nothing about knowing how to program that prevents hackers from understanding users, or about not knowing how to program that magically enables business people to understand them.
I've found you can pretty much tell if someone believes this is true or not if they ever use the phrase, "he's a computer person." To these people, knowing about computers and the rest of the world are mutually exclusive. It's sad what a massive section of the population this includes. I suspect including any of these people in your own startup would be suicide.
I wish them well. The founders are actually good friends of mine. But I felt I was being offered a very sour deal and they tried to take an advantage of me. It really did sour our relationship.
Your pizza just the way you ought to have it.
That should obviously be 'start up a startup'!
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.
Assembly is the reverse of disassembly.
Actually, we did raise our rates at the beginning of the year. And I do earn a little bit more per hour now than I did.
My point is, there's a difference between being paid fairly for your work, and "getting rich" from it.
Also, we're not necessarily "unwilling" to bring in an apprentice. The problem with that line of thinking is, you can't do it properly without being able to set aside a good bit of your own time getting the new person up to speed. In the current situation, I can only see that going poorly. (New tech would start, and we'd end up only teaching him/her 50% of what they needed to know just because we'd be feeding the info piece-meal between calls we were doing ourselves.) Might be a good strategy after we hire one more tech with experience though, so things could settle down a bit.
Lastly though, getting "more customers than we can handle" doesn't automatically mean raising prices is the best solution. That can backfire, driving large numbers of your former customers to competitors. A lost customer is pretty tough to get back again. Right now, we're billing $89/hr. plus a trip charge for each call. To do something like a virus/spyware cleanup the *right way*, you're normally looking at 2 to 2 1/2 hours of time. That means a customer is going to be paying in the neighborhood of $200 to get that problem fixed.
Sure, we could charge more - but when a brand new Dell PC costs as little as $399, where's the incentive for anyone to pay $200+ to clean up their 2-4 year old PC? Not only that, but you up your own stress levels - because customers become "clock watchers", constantly nagging you with "Are you almost done yet?" This leads to cutting corners to speed things along, and more dissatisfaction. (EG. Upgrade their XP to Service Pack 2? Maybe not... since it'll take 30 minutes more to finish updating. But then, you might be leaving them open to more problems.)
Apple made huge profits during the 80's and early 90's. It was when Jobs was forced out, and the standard business man took over, that profits went down. He was not able to think long term.
As to MS, they were not profitable for a long time. It was an illegal monopoly that provided them with outlandish profits. Prior to that, they had profits and revenues similar to any other company.
I prefer the "u" in honour as it seems to be missing these days.
I do think that people who have to actively convince others that they're intelligent are trying to cover up the fact that they may only be a half step above the rest--if that--but it seems almost as probable that a genius with a short temper would run around insisting the same.
Well, there are all kinds... I think the real genius with the short temper would be well aware that he has a short temper, and be very careful to avoid situations where his temper will handicap him (like the one you're describing). If he doesn't understand himself well enough to work around his shortcomings, he's likely denying himself a lot of success.
Maybe you need a better example, but in your situation it sounds like you are getting nowhere, getting frustrated, and still hitting your head against the wall. I recognize the feeling, but the clever move at this point is to dodge the argument. He's practically brain-damaged; it shouldn't be hard to re-route the conversation. Just shrug and move on to something else.
I don't want to pretend I'm perfect at this myself -- for some reason when I'm hungry I always find myself wrapped up in silly arguments (if I were really smart, I'd always recognize what was happening...). But the point is, it's important to bite your tongue sometimes, even when you're "right", even sometimes about something important -- if in the end you doing more harm than good (angering people and actually harming your cause, or just wasting your time). Think about it -- what are you actually accomplishing in proving your point? And "winning", of course, doesn't count -- there has to be an actual benefit to someone that outweighs the work you're putting into it (and the frustration both of you are experiencing).
First of all, declaring bankruptcy isn't a nice thing. It only handles unsecured debts (your car, house, etc are still going to be repossessed). Your credit is screwed for 7-10 years, for instance, so you won't be starting up another business with a loan anytime soon, or possibly even renting the apartment you want, or sometimes even getting the job you want.
The worse the penalties are for *failing* when you launch a startup, the fewer people will take the risk (meaning less competition with the big guys, less cool new products, etc.) -- that's why it's bad to make it worse when someone has to bail out.
Of course, if bankruptcy is *too* easy, that's bad for business also, because big, rich banks are not the only creditors. If you had another startup developing your massive web portal, for instance, when you go broke and don't pay them for all that work you may well bring them down with you. This was one of many reasons the startup I worked for went belly up in 2002....
OK, I've started several companies and am now working for a VC firm. Here are a few of my thoughts, having sat at both sides of the table.
A) Build a company, not a product: There are a number of great product ideas, but they are not things that make a company. A company is something that will have value for years to come. A roduct can sell now and typically has a more limited lifetime. You have to focus on a problem/market that your idea/technology can address over a long term with multile roducts or extensions. If you can show you are only sarting on the solution to a big problem and have lots of room to complete the solution/grow, you'll be building long term value. that is good for you, your employees and important to raising venture capital.
B) Of course VCs are looking for an exit strategy. VCs raise their money from wealthy individuals, pension funds, etc and they are called LPs. The LPs invest in the high risk venture to get a higher than normal return. The risks of start up investing are enormous. A fund lasts for 5 years or so and then the VC has to go out and raise more money. the thing potential LPs look at is the performance of the last fund!
The VC is always looking at ways to get their money out and make money at the same time. They want management who are motivated by making money. Many will talk of building great companies, etc, but this isn't exactly the whole truth. In order for a VC to get their money out they have to invest early, wait 3-5 years for an IPO and then 2-3 more years to sell their stake. Unless they invest in a company that has long term survival prospect they can not make the kind of return they need to satisfy the LPs. of 10 investments only 1 (at most) typically can make it to IPO. maybe 30-50% fail and the rest get a 2x -3x kind of returen over 3-5 years. It is the one IPO in 10 that makes the fund.
C) Sales is the key: There are a lot of reat ideas, but too many founders are very technical and have no clue about how to sell things. They think if they just hire the sales guy and send him out it will all be OK. Sales is very hard, especially for a new company with a new product. it takes a lot of effort toget the first customer. And then that same effort to get the second. it takes very talented people to make thses sales and they need a huge amount of patience becuase most potential customers say no and those interested take a long time to sell.
Most tech founders don't give the credit to or the support needed to the sales folks. They are not treated with enough respect. They are not listened to. What they say reflects what the customer is saying. if you think what the sales guy is saying is stupid, it is your own fault for not providing that person with the training and understanding to help the customer understand the value proposition.
D) Team is Key: A great team is key. There are huge challenges and risks and a lot of unknow territory for a start up to cross. A VC or a customer wans to see that the team has what it takes to see things through, can work well together in a crisis, is driven towards group/company success and not just for their own ego, etc.
E) Pick a VC More Carefully than a Spouse: Divorce rates are 50%. A divorce with a VC means you get tossed from the company you created or your business gets closed. People only look at the money or the size or prestige of a VC firm, and this is a mistake. Who is the partner that will sit on your board? Is that person someone you can trust and turn to for advice at a hard time/crucial moment. Does the VC firm have contacts/skills that can help you? The lesson of the dot-com bust is that VCs gave money to peole who had no business running a business and then just ignored them for the next new deal. Kind of like someone marrying you becuase you are cute and then after the marriage deserting you to spend time with the next cute person. You want a real partner. Interview the VC and due diligence on them in the same way they will be
Discrimination is allowed for companies up to a certain size. Sexual Harassment is not.
"Avoid employing unlucky people - throw half of the pile of CVs in the bin without reading them." -- David Brent