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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
Note that he says "successful" startup. Plenty of failed startups had lots of money.
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.
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.
I would like to know HOW. how do these people have the ability to get money without a viable and researched product and business plan?
That is the easy part from my experience, getting someone to shell over $200,000.00 in startup capitol to fund the prototypes is next to impossible. finding Sales people that can competently sell as well as management that is actually skilled and desire to grow a business and not their wallets is even harder.
Venture Capital even in the 90's was not interested in creating a long term company providing a product/service, they were only interested in huge gains almost overnight. I know, I was a "startup" back in 1994-1995 with one of the first ISP's in the area I lived, no money was to be had from any source unless you made pie-in-the-sky promises and was a overzealot yes man that did not care about telling the truth to "investors".
if you were honest and showed them a 5 year plan they told you to go away..... show them a 24 month plan and they are all over you.
So how in the sorld are these people getting the money to start the startup without a real and viable plan?
Do not look at laser with remaining good eye.
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
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.
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?
As a (somewhat) successful entrepreneur, I take exception to your statement. I've been running my own network services company for about a year now. I started it up with practically nothing. Granted, it's nothing as sexy as working on the next killer app with a staff of 3 dozen people, but it was a startup. And it was done without having to sell my soul to a VC vulture.
It's been my fulltime job since I started. My truck was fully paid for before I started, I live in a cheap one-bed apartment and I have three cases of ramen in my pantry as I write this. But, my bills are always paid on time and I have enough cash to grow my biz. In fact, I just leased a tiny bit office space last week. I had been working exclusively out of my home.
You don't need a lot of money to be successful. The #1 thing, by far, that you need is dogged persistence. It's rough and can be very nerve wracking. You have to have the ability to hang in there.
And.... since it's on-topic, I'm going to plug the messageboard in my sig. I started it a couple of weeks ago to help others in my situation. It pays to learn from other's mistakes and it's great to have the moral support. If you run your own biz or are thinking about starting one, please come check us out: SmallBizGeeks.com
Entrepreneur : (noun), French for "unemployed"
this is like saying, to start a fire, you need a big huge can of gasoline.
you do not need money to get a startup going. you need motivation, good people to work with, paying customers, and cunning thriftiness.
give some moron who thinks the only way to start fires, a big can of gasoline, and you'll have a disaster on your hands, probably a crispy moron.
paying customers is the hard part, but then, software is a wonderful tool
; -- the corruption of government starts with its secrets. a truly free people keep no secrets. --
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.
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/
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
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.
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."
Considering he is only one year in, doesn't appear to be in debt and controlling his own destiny....
Yes.
Slashdot: Failed Car Analogies. Amateur Lawyering. Anecdote Battles.
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.
It just so happens that I'm attending a series of lectures about how to make good startups.
As it turns out, the number one indicator for predicting whether someone will succeed with his or her startup is whether he or she has an urge/drive to take control over his/her own destiny! Not how hard he or she works, not how briliant the idea or innovative the product is, not how good a sales person or manager he or she is, nor how much money is available.
When measuring success post-factum, resources (i.e. mostly money) are not the key factor either. You need: 1) an opportunity (this includes "a good market" and "good timing"); 2) a good team; 3) enough resources. All of them are important, but in that order
Linux user since early January 1992.
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.
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.
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.
There are definitely sharks in those waters. What amazes me is less that people are willing to be unscrupulous bastards, and more that we Americans don't seemto have any tribal knowledg warning us about this. I know of no one in my generation (X) who was warned of these dangers by our parents (boomers). It's nice to see so many young Slashdot readers who are very credit-phobic. Perhaps the lesson is finally being learned by the "Millennials".
Socialism: a lie told by totalitarians and believed by fools.
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."
I agree that it's important that people must be more responsible with their debt and consider their loans and purchases more carefully. The wording of the current bankruptcy reforms seem to indicate encouraging more personal responsibility. However, I believe it's geared toward improving the credit / bank industry profits.
2 21.htm
Consider this article: http://www.ama-assn.org/amednews/2005/02/21/gvsc0
Well over half of the US's bankrupcies in 2001 were a result of medical bills. Most alarming:
"The study found that while three-fifths of respondents who declared bankruptcy due to illness or injury had private health insurance when they got sick, one-third of them subsequently lost coverage, often because they had to stop working."
So it can be inferred that not all these people are entering bankruptcy due to gross irresponsibility. Similarly, people running small businesses or self-employed people might be doubly vulnerable in the case of a medical crisis.
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."
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
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.