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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
Um, that I think is covered under "something customers want" part.
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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.
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"
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/
Just because you make something people want, doesn't mean you automatically have customers.
Making something customers want requires an understanding of what the customers want in the first place and good development to actually be able to make that product.
Getting customers requires good marketing to get word out about your product and good salesmen to tell people why your product is better than the rest.
Slackware
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.
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."
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.
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.
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
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.