1. JANUARY 2013
Several months ago I've come to recognize the wonderful culture of startups, and everything that comes with it. I'll write mainly about technology startups, although majority of the content directly correlates to other industries. Even though my older brother has been a major player in the industry since the late nineties, I had never taken any interest in it. To be honest, up to summer of 2012 I had absolutely no idea what I wanted to do with my life.
After returning from a six-month student exchange, I found two of my friends working on an interesting project. They were developing a business app for a wealthy owner of eleven companies. It would help him run his businesses more efficiently, and my friends were on a path that would lead them to a considerable amount of money. All of this was quite tantalizing and got me all wound up. I called one of the friends and we went out for a couple of beers.
I had a lot of questions.
During that evening he told me all about what they were doing, what technologies they were using, and how he got into it while I was away in Asia. I sat there soaking in all the information, and before we knew it, it was already 3am. The next morning upon waking up, I quickly had something to eat, turned on my computer, and started researching.
That’s when I stumbled upon Codecademy, a website where you can learn the basics of web development in a fun and interactive way. For the next couple of days, I spent roughly fourteen hours a day glued to my chair, learning how to code. I remember how exhilarated I was after making my first crappy website. I instantly knew that this industry is something that I could be interested in for a long time. All of this happened in the end of August 2012. Although it wasn't very long ago, I've learned a lot since. And as the ol’ Socrates would say - the more you know, the more you realize you don’t know shit.
After a couple of months spent talking to people in the industry, and reading a pile of very insightful books, I've decided to wrap it all up in form of this short guide. It is written as a manual, and it offers the most basic guidelines on running a viable startup. This will also come in handy as my own personal startup guide, which I will update as the time passes, and new knowledge comes to light.
1. JANUARY 2013
There are many factors that influence decisions that people make while building a startup. Productivity, finances, CRM, production techniques etc. are all parts of the business that need to be taken care of adequately. Sometimes it's difficult for young and inexperienced entrepreneurs to juggle all of these things. All attention is usually placed on product development, which leaves many aspects of the business lacking attention, making the business as a whole vulnerable.
In order to make sure that everything goes according to plan, it's necessary to have some sort of a manual that will help us stay on track. This guide is written as a set of guidelines that should serve for just that purpose.
I'll be going over the most critical parts which when combined are able to produce a viable business. These parts are:
- Creating an idea that might lead to a profitable product
- Doing the research to make sure that you’re solving a problem
- Building the product and testing it in the real world
- Marketing and building the customer base
- General guidelines for running a viable business
Let us begin.
2. JANUARY 2013
Start now, think later
Many potential entrepreneurs fall into the same trap. They have some kind of idea, and they want to start bringing it to life. Perhaps they do a little bit of research, tell a couple of friends, but that's pretty much it. Most of them never do anything about it, and in the end, they take their idea to the grave.
People are prone to maintaining the status quo, it is in our very nature. We wait for the perfect opportunity, the perfect time, the perfect set of circumstances. But the harsh reality is that the perfect moment never comes. This is what separates real entrepreneurs from everyone else.
Real entrepreneurs believe in challenging the status quo, they believe in starting right now. They know that time spent waiting for the perfect moment is time wasted.
Everyone has an awesome idea, but how many of those ideas ever become a reality? One tenth? Probably even less. This is because maintaining the status quo is easy, it’s safe, it’s normal. Most people are consumers. If one wants to achieve something more, he needs to become a producer. He needs to start creating new value, and bring it to the real world. Creating value is a continuous journey, and every journey begins with a single step forward. And remember that time is one of those things that you can never get back. It is a constant shared by every person on this planet, wealthy or poor.
The idea of waiting for a perfect moment should not be confused with waiting for a tactical reason, such as releasing a new product right before Christmas. Sometimes waiting a little bit is just the logical thing to do. But always ask yourself, are you waiting for a reason that makes sense, or are you yet another victim of inertia.
2. JANUARY 2013
Passion versus wealth
There's a saying that if you do what you love, you will be successful. This sentence has been blatantly thrown around in many books and articles in the past few years, and majority of the people completely misunderstand it. Let me be clear. Trying to monetize on something that you love doing isn't guaranteed to bring you success at all. Nobody cares about your passion. Nobody will part ways with their hard earned money because you have a hobby.
There is one crucial factor missing in this equation, and that is market demand. If there is no demand for what you're selling, your business is worthless.
There are a couple of things to consider here:
- Hobbies and dreams rarely meet the market demand.
- If there is no demand, you have no business.
- If you aren’t skilled, you won’t be able to make it.
- If you're skilled and there is demand, you are blessed.
An example would be someone who loves to work on cars. Let's call him Joe. Joe has decided to transform his passion into a business, but there are a couple of problems. There are already two well known and respected repair shops present in the town, and even they are slowly running out of business due to the bad economy. In addition to that, Joe's technical skills are moderate at best since he only had experience working on his own couple of cars. Let us be honest. It would be extremely unwise for Joe to invest money and time in starting his own repair shop. It might be his dream to own the shop, but market doesn't care about dreams. There is no demand, and the business is not viable.
2. JANUARY 2013
Look for problems
In the last chapter we talked about hobbies, and how they don't equate to viable businesses. So, what does make a viable business? The answer is simple—market demand. The people don't care about what you love, but they do care about themselves. People want to know what you can do for them. Can you help them fulfill their needs? Can you solve any of their problems? Those are the questions you should be asking yourself when trying to develop a business idea. Think about the people and what they need, not about your own selfish dreams.
A good way to identify viable businesses and pinpoint demand is to look for problems.
Just look at some of the problems you're having. Think of the most annoying nuisance that's been bothering you lately. Now imagine if someone had a solution to that very problem and it was right there, within your grasp. You'd probably start throwing your money at that person, and for a good reason.
3. JANUARY 2013
Share your thoughts
A couple of weeks ago, I was sitting at a bar with some friends talking about our future plans, and what will become of us once we graduate. After a couple of drinks the bar got crowded so we let two other guys join our table. After some time, one of them starts talking about this amazing idea he's been thinking about lately. He says how it has something to do with technology and web, and how he's looking for someone to help him bring that idea to life, since he doesn't know how to code. So naturally, we ask him what the idea all about. He mutters something and takes another sip of his beer. We ask him again, and he says how he can’t tell us for we might steal it. I suppose the next step would be signing a non disclosure agreement, but he pretty much lost us right there. Why?
Because today anyone can have an incredible, revolutionary idea that will change the world. Unfortunately, even the best of ideas are completely worthless without a solid plan of execution. If an idea is really that great, you can be pretty sure that there are people doing something similar already. People invested money in dozens of search engines before someone invested in Google. Microsoft invented contemporary tablet computer in 2002, but nobody knew about tablets before iPad. There are an astounding number of such examples where the idea meant nothing, while execution meant everything.
According to a successful entrepreneur—Derek Sivers, ideas are just a multiplier of execution:
It's so funny when I hear people being so protective of their ideas. (People who want me to sign an NDA to tell me the simplest idea.) To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.
To make a business, you need to multiply the two. The most brilliant idea, with no execution, is worth $20. The most brilliant idea takes great execution to be worth $20,000,000. That's why I don't want to hear people's ideas. I'm not interested until I see their execution.
People can try to copy an idea, but they cannot copy the way you execute it. That's why angel investors often say how they invest in people, not in ideas.
5. JANUARY 2013
Great artists steal
Many creative types seem to shudder at the thought of borrowing someone else's work. While this may be considered positive under some circumstances, it mostly isn't. People tend to forget one very simple fact.
Nothing is truly original.
All of the new products, every single idea—everything is a result of someone stealing knowledge and using it to enhance his own creations. Stealing is the key to innovation, the key to progress. It is only logical to learn from others, and imbue your own work with their creations of the past. There is a difference however, between stealing for the purpose of making progress, and just plain copying. It was best explained by one of the greatest poets of 20th century:
Immature poets imitate; mature poets steal; bad poets deface what they take, and good poets make it into something better, or at least something different.
—T. S. Eliot
All artists steal from one another. Some of them progress and become icons. And once they do, other artists begin to steal from them and create their own work. Stealing isn't exclusive to the art community. Apple Macintosh was the first widely available PC with graphical user interface. But GUI wasn't Apple's idea. Steve Jobs actually took the technology from Xerox, and made something wonderful with it. As Mark Twain said, it is better to take what does not belong to you, than to let it lie around neglected.
5. JANUARY 2013
Test your hypothesis
Once an idea is formed, it needs to be thoroughly tested. People tend to ignore the things that indicate how their idea might not be that brilliant after all. There's nothing wrong with that, it's human nature. Luckily, there are numerous tools that we can use to determine weather our great idea is really nothing more than just a bad hallucination. While developing an idea, we establish certain hypothesis.
„People will be interested in using our product“
„People will be willing to buy our product“
„Our market consists of this and that“.
All of these are hypothesis on which we base existence of our entire business. If these hypotheses were to be proven false, our future business would collapse like a house of cards. Wouldn't it be logical to test these hypotheses before we actually start building the product? Yes it would. And yes, it is absolutely necessary.
Unfortunately, all too often entrepreneurs completely skip this crucial, time and money-saving step. So, how can we find out whether it's possible to build a viable business out of our idea?
5. JANUARY 2013
Talk to the right people
In order to find your market and determine whether there is any demand for your product—you need to get out there. You need to leave your comfort zone and get your hands dirty.
Start off with talking to your friends and family. Depending on the product, you can get some valuable info this way. Not only is your inner circle easy to reach, but talking to your friends and family is way less stressful than talking to other people you've never met before. This is a good way to warm up for upcoming meetings, cold calls, and battles with secretaries. Just keep in mind that your loved ones may not be as sincere with you as they should be. None of them would enjoy being the one who crushes your dreams.
The next step is talking to the relevant people in the industry. They are basically your future customers. If you're in the business of making wire-framing apps for graphic designers, go talk to them. And not only the designers you know about. Seek the graphical designers in all areas and markets. From small next-door creative studios, to huge corporations like T-Mobile. Find out what’s bothering them, what is their pain, where does it hurt the most. How can your product make their pain disappear? Perhaps designers in small studios don't have the same kind of problems as designers inside bigger corporations.
Before you talk to people, make sure they know you aren't here to sell them something. You are developing a product, and the only thing you need right now is information. Tell them about your product, and ask if they would be interested in using it. Sometimes people won't even be interested in using your product for free, let alone buying it. How's that for a dream crusher? If they are interested, ask how much would a product like that be worth to them. Ask them if they want to keep in contact with you, and perhaps even follow the development process. This is a good way to create evangelists even before your product goes public.
Be aware that these people are giving you their time, so feel free to offer something in return. Share some of your own insights and knowledge. Be respectful and thank them for the interview. Now go home with your newfound information, and see how it stands up against your hypothesis. If they seem to be in line—you're on the right track. If not—your idea might not be as brilliant as you thought.
5. JANUARY 2013
Make a landing page
As we said in the previous chapter, believing that there is demand for your product means nothing. People believe all sorts of things, but that doesn't make them true. You need test your beliefs, and see how they match up with often harsh reality.
A good way to do this, is making a landing page. It's usually a one page website which presents your product, urges people to sign up, and eventually buy what you're selling. You might be asking yourself, why would anyone make a landing page for a product that doesn't even exist yet? The point of this experiment is to see whether people are even interested in buying your product in the first place.
If you suck at design, you should probably hire a good designer for this one. It shouldn't cost much for it’s only a single landing page. The page should be designed well. It should convey the values you're bringing to the customer. Once it's complete, set up analytics and track how many people visit the website. How much time are they spending on it? How many are signing up for your service? Are any of them actually clicking on „Buy Now“ button?
All of this information is pure gold. It shows the real market demand for your product. If you're sure that people know about the landing page, and they are visiting, but nobody is signing up—you might think twice before continuing with product development.
6. JANUARY 2013
Identify your market type
Before beginning with product development, we need to establish our Market Type. It is a concept coined by Steve Blank—serial entrepreneur, academician, and author of „The Four Steps to the Epiphany“. Basically, there are three types of markets, and you're bound to fit in one of them. The types are as follows:
- Existing market
- Re-segmented market
- New market
Existing market is well established, the competitors are known, and the entry barriers are most probably high. We don't step into an existing market to offer a different product, or lower prices. We cannot bring new customers into an existing market, we can only attract some of the existing customers by offering a better product (more features, higher efficiency, better design etc.) than competition. We cannot expand an existing market, we can only try to steal a slice of it.
Re-segmented market comes into play when we bring a product to an existing market, while having a considerably lower price than all other competitors. In this case, we not only attract the existing customers, but we also attract new, price sensitive customers into the market. So in addition to stealing a slice of the market, we also expand it. We are also re-segmenting the market if we launch a product that is similar to the competitor’s product, but also has a unique feature aimed at a certain type of customer. In this case we are again attracting existing customers, as well as bringing in new ones that start participating in the market because of the unique feature.
New market creation is a truly rare event. Introducing a product into a new market means that your technology / idea is so advanced, that nothing even remotely similar presently exists. When you enter a new market, your product owns the entire 100% of it. You might think how this is an ideal position to be in, but it is rarely so. Yes, you don't have to one—up your competitors, or worry about market share. But you do have to worry about market size. Growing a market is no easy task. Your primary concern should be educating people. Since your product is so advanced, potential customers aren't even aware of what it can do for them. It is necessary to explain what your product is, what it's for, and how they can benefit from it.
Note how it doesn't really matter what you think your market type should be. What matters is what your customers believe. If you choose to be in a new market, but your customers believe you're in a re-segmented market, most of your marketing efforts will be in vain. You need to identify your market type by finding out what your customers think. Again, get out of your building and talk to people. Here is an excerpt from Brant Coopers and Patrick Vlaskovits's book—„The Entrepreneurs Guide to Customer Development“:
The toughest distinction to make is whether your product represents a new market, or is re-segmenting an existing market. There is a tendency for startup entrepreneurs to believe that they have a new product for a new market, though this is rarely the case. It can be argued that most technological advances either lower costs or enable new functionality that improves problem resolution within existing markets. True market disruption often requires major technology innovation or uses existing technology in a new and unforeseen way. Most likely, you are re-segmenting a market.
7. JANUARY 2013
Business plans are worthless
What I'm talking about are the long-term business plans. The ones where you project your earnings and costs for the next five years, the amount of market share your company will own etc. These are absolutely ridiculous. The path of a startup is incredibly unpredictable. You don't know in which ways the customers might use your product or if anyone will buy it at all. How on earth could you possibly come up with a five-year financial plan, when you don't even know if there is any demand for the product? You can't of course, which makes long-term business plans completely and utterly worthless.
Consider it from a different perspective as well. While following a business plan, you are only taking advantage of the information you had at the time of writing. General consensus is that business plans are made to be followed. That means that after three years, you would be running your business based on three-year-old information. Just imagine what can happen during a period of three years in the world of technology. Circumstances change from one month to another, let alone over the period of three years.
On the other hand, short-term business plans (under one year) can be quite useful. Not so much for planning, but for wire framing. It's a nice little tool that you can use to write down and sort through all of your ideas. It can also be updated and changed, as the time passes, and your startup takes on a different path.
7. JANUARY 2013
Validated learning and MVP
This is what most people believe product development should look like: Someone in the board of directors decides how it would be quite dandy if the company released a new product before end of the year. Product development department starts thinking about what sort of thing they should pull off this time. They take an idea which best suits them, completely develop the product, and send it off for production. Here's where the marketing department jumps in and starts throwing money at people hoping that ads, banners, and vague promotions will get enough attention of the general public. The product launches, and everyone crosses their fingers hoping for the best.
Need I say how ridiculous this approach is? I think not. Lets talk about the right way to do it. The process is simple — prototype, deploy, learn and repeat. Prototyping is known as building the minimum viable product (MVP).
MVP is the product with the fewest number of features needed to achieve validated learning, and for which users are willing to "pay" in some form of a scarce resource (money—buying, time—signing up).
Validated learning is a concept in which you deploy the current version of the product receiving feedback from your customers. The feedback is then used to validate your assumptions and gain insight before launching the new, improved version—and thus repeating the process.
The concept of fast prototyping and validated learning is the backbone of „The Lean Startup“ methodology, developed by Eric Ries. The details of this approach are beyond the scope of this paper. For this reason, I have simplified the process, so you can better understand its core values. It basically goes like this:
You develop a prototype (MVP) with a small set of core features, and make it available to a part of your customer base (thus taking advantage of A/B testing). This way you can collect the feedback and use it to test your hypotheses. Testing the hypotheses using real world feedback is called validated learning. It means that you've learned something new—and you are sure that the information is valid (because it's been tested in the real world). Then you take the newfound knowledge of your customers, and use it to improve your next prototype (MVP). After it's ready, you deploy the improved MVP thus repeating the process of validated learning. Note how developing the prototype should be done in a minimum amount of time, so that the process of validated learning can be repeated as many times as possible.
The lean startup movement has gained a considerable amount of traction in the community, and for a good reason. This kind of approach to product development takes advantage of rapid prototyping, which leads to efficient learning about your customers and about your market positioning. It also gives the business much needed ability to quickly change direction, thus tailoring itself to the market demand. We'll talk about this in the next chapter.
8. JANUARY 2013
Know when to pivot
Sometimes things don't go as planned. Maybe you poorly position your business, maybe the market starts fading, or perhaps you identify an even better opportunity in a different market segment. While screaming and cursing is always a noble choice, pivoting would make an even better one. Pivoting is the process of rapidly and decisively changing direction of your startup to achieve a better market fit. Being able to pivot quickly and effectively is a major benefit of lean startup methodology.
There are numerous examples where pivoting brought a huge success to startups. YouTube for example, started as a video-dating site. When the founder Steve Chen realized that there isn't enough demand in that market segment, he decided to pivot. The result was getting acquired by Google for $1.65 billion.
Deciding when to pivot is a challenging task that has the power to make or break your business. You'll often see startups that are just slugging along, not making enough profit to be successful, yet enough to be barely alive. Most of them are going nowhere, while wasting time of their employees and investors. This is because the owners are afraid to challenge the status quo and change direction of their business. They are afraid of failure, sometimes public. To avoid this fate, some of them choose to stay in the limbo instead of facing the reality, embracing the risk, and taking the path of progress.
8. JANUARY 2013
Less is more
People tend to believe that more features equate to a better product. The truth is that in most situations, one has no correlation to another. In fact sometimes, less features make a better product. Why are Apple products so popular? Certainly not because they have lots of features. It's because everything Apple does—is done flawlessly. Less is more. Quality over quantity. One of the biggest profit killers is the dreaded feature creep:
Feature creep is the ongoing expansion or addition of new features in a product.
It hugely increases labor costs, development time, and makes the product unnecessarily complex. Remember, the goal is to develop a minimum viable product and start testing your hypotheses. Building a complex monstrosity of a product isn't going to bring you any closer to validated learning.
Product should always be built from its core. Don't worry about the details early on. Always start by making the core features as good as they can possibly be. Nobody cared if the first iPhone had improved Bluetooth connectivity, a radio or a voice recorder. But people did care about the basic stuff that was done wonderfully. Beautiful design, big bright screen, intuitive interface, and almost organic feeling you had while using the touchscreen. The same is with sports cars. You can build a car that has leather interior, advanced navigation, and buttons for everything you could think of. But if the steering is soft, throttle response is sluggish, and the engine sound is uneventful—forget about it. You'll have a better chance of selling sand in the desert.
I'll leave you with a quote from Jason Fried's book—„Rework“:
You can turn a bunch of great ideas into a crappy product real fast by trying to do them all at once. You just can't do everything you want to do and do it well. You have limited time, resources, ability, and focus. It's hard enough to do one thing right. Trying to do ten things well at the same time? Forget about it. So sacrifice some of your darlings for the greater good. Cut your ambition in half. You're better off with a kick-ass half than a half-assed whole.
8. JANUARY 2013
Expand your network
You can have an incredible team of capable and motivated people, a solid vision, and the best product on the market—but you can't take advantage of those things if nobody knows about your company. Having a wide network of people who can help you progress and make connections, is one of the most crucial factors to your success.
Have you ever heard of the phrase—„You're only as good as who you surround yourself with“? That saying is true for every aspect of our lives, including business. Always surround yourself with quality people. Especially those people that are smarter, quicker, and more successful than you are. Most people like to hang out with those who are on their level, or less powerful than they are. Don't do this just to feed your ego. Progress rarely happens inside your comfort zone. You need to step up, and surround yourself with those you can learn from.
Did you know that in most cases, if you take the incomes of one’s five closest friends and average them, the number should be roughly the same as the person’s own income? That's just how it is. Successful people surround themself with other successful people.
8. JANUARY 2013
You can write about anything you want, as long as people benefit from reading it. You could write about new technologies, everyday life in the industry, or even make comics. There are several benefits of writing:
- It's a great way to develop your writing skills.
- If you write good material, you will get noticed.
- It's great for receiving feedback on your ideas.
- It can be used as platform for launching new products.
The ability to write a good copy is an invaluable skill when starting a business. Good copy is one of the most crucial factors when bringing a product to the market. Whether it's a magazine, news article, your own landing page, presentation for pitching investors, or even every day email correspondence—a copy can make or break your chances of success.
By writing great material you can get easily noticed—not only by your potential customers—but key people in the industry as well. The people that are more successful than you are, and can help you progress.
Receiving feedback from your customers is the backbone of rapid iteration. By writing about the ideas you're having, it's possible to receive valuable feedback via the comment section. Don't be surprised if you start receiving emails from people interested in your business as well.
When launching a new product you want to grab as much attention as possible. A blog with a few hundred—or even better—a few thousand visitors can rapidly accelerate growth of your market share.
With free and easy to use platforms like WordPress, blogs can be created in a matter of minutes. Take advantage of what's available to you free of charge.
11. JANUARY 2013
The only thing you want during a launch of the product is to maximize the growth of your market share. In addition to using your blog, you can also take advantage of your web site. You can do that by creating a simple, well-designed landing page while the product is still in development (we went over this in one of the previous chapters). This website can be the same one you used to track visitor activity and get real world metrics, or you can make a different one—depending on the situation.
The website should present your product, explain how it's currently in development phase, and most importantly—it should call for action. You want potential customers to leave their contact information—usually email—so that you can contact them once the product is finally released. Do not make the mistake of spamming people that signed up for your newsletter. In most cases, they just want to know the launch date.
12. JANUARY 2013
Evangelists are the ideal customers. Not only are they in love with your product, but they're spreading the love as well. For free. They support your company no matter what, and are happy to offer constructive criticism. Evangelists are those people who set up tents and wait in front of the iStores for two nights, just to be the first ones to get the new iPhone. They could had walked into the store and bought it off the shelf a week later, but no—they wanted to be the very first ones, they wanted to feel like a part of something amazing, so they waited. Creating evangelists is one of the best things you can do for your business.
First of all, you need a kick-ass product. Second of all, you need to create a community where people can interact, and get involved with your company. Be it forums, events, or volunteering. Yes, evangelists will work free of charge for your company, because they want you to succeed. They want you to continue doing what you do best, and are willing to sacrifice their time in order to help you. In addition to that, they make the best employees, so make sure to create job opportunities for them.
13. JANUARY 2013
Attract key figures
We all know how ethos is one of the key factors to selling a product, and in this chapter we'll talk about taking advantage of that. In case you're a well-known, successful entrepreneur—feel free to skip this chapter, if not—read on.
Imagine you were spending $60.000,00 on a new car. Would you rather buy a BMW, or some unknown new brand that just entered the market? A BMW is a well-known brand that stands for quality—and people know that. You can't say the same for the other brand. Perhaps it's just fine, perhaps it's a catastrophe. Most people won't take the risk, and they'll stick to the credible brand.
Credible means well made. It means stable, it means familiar and it means safe. Adding credibility to your product equates to more sales.
The easiest way to go about this is contacting key influencers in the industry while developing your product. I’m talking about tech journalists, well known successful entrepreneurs, or even venture capitalists and angel investors. At the end of the day, everyone is only human. They get up every morning, wash their teeth, and take a crap—just as you do. There's no reason to be afraid of contacting these people. How you do it? Just like you would with anyone else (if you're a nice, normal human being that is).
Ask questions, seek advice, or just shamelessly befriend them. Be strong—but kind, self confident—but respectful. Always keep your word. Dress well, smell nice, and please learn some email etiquette before trying to contact them. Some of these people will have secretaries—make sure you're being respectful to them as well. It's not that complicated. You’ll be amazed at which lengths the people will go in order to help you. They'll probably be honored by the fact that you're seeking their advice, and they'll want you to succeed.
13. JANUARY 2013
Time is money. Time is validated learning. Time is everything—especially when starting a business. There are a couple of major time and energy wasters that should be reduced to an absolute minimum:
- Feature creep
Interruptions are by far the biggest time wasters. People are most efficient, and most creative—when they are in their work mode. Work mode is that zone in which hours seem like minutes, and there's a certain flow to your thoughts. It usually occurs when you're working alone at night, free of any interruptions. It's the reason why students are able to pull one-nighters, and get good grades. When you enter that zone, your brain gets turbocharged with ideas, and it becomes eerily focused.
Getting into that zone takes time and requires avoiding interruptions. It's like REM sleep: You don't just go directly into REM sleep. You go to sleep first and then make your way to REM. Any interruptions force you to start over. And just as REM is when the real sleep magic happens, the alone zone is where the real productivity magic happens.
—Jason Fried, Rework
Basically, just keep the interruptions to a minimum. When you interrupt a coworker with an email, a phone call, or a YouTube clip featuring Hitler look-alike cats, you're costing the company money.
Meetings are the bane of productivity. First of all, consider this: When you pull 10 people in for a 60-minute meeting, you're not wasting one hour. The meeting might last 60 minutes, but people waste another half an hour on getting there, leaving the meeting, and getting back into their work mode. And remember, you're pulling in 10 people for a meeting, which means that you just wasted 15 hours of labor—all because of one 60 minute meeting. Second of all, meetings are usually extremely inefficient. People are never prepared well enough, half of them don't even know what’s going on. The agenda is usually vague, and the conversation can easily drift off subject.
If holding a meeting is really necessary, you should at least try to make it efficient. Cut down the number of people present to a minimum. Start talking about whatever it is you need to talk about—right after everyone gets in. Have a moderator and keep the conversation on track. At the end of the meeting, make someone responsible for implementing the solution, or it probably won't get done.
14. JANUARY 2013
Avoid feature creep
As I already mentioned in the „Less Is More“ chapter, feature creep is a huge profit killer. Let's repeat: feature creep is the ongoing expansion or addition of new features in a product. And I don't mean that in a good way. More features don’t equate to a better product. But they do equate to a more complex product. This can be good or bad, depending on the situation. In this chapter we'll be talking about the bad.
We already covered the problems correlated to feature creep during the product development. But that's not the only time when feature creep rears its ugly head. It may also take turn after launching the first version of the product. Once your product is out there, customers start sending suggestions. They whine, they complain, and they ask for more features.
„Implementing this would make your app so much better“
„I’m thinking of buying your software, but it's missing just this one thing...“
The solution is simple—just ignore your customers. Yes, I know, the general consensus is that you should always listen to your customers. Well, not always. Why? Because it is absolutely impossible, and quite ridiculous to try to make everyone happy. If you listened to every suggestion or feature request you recieved, your product would turn into an unholy mixture of incomprehensible goo. And don't get depressed when you receive mostly negative feedback either. Remember—satisfied customers don't feel the need to contact you, everything is working just fine for them! It's the naysayers you'll hear from the most.
The best way to filter through all the suggestions is the following: Read them, and just keep hitting that delete button. The ones that are insignificant—will soon be forgotten. But the ones that you should be thinking about—will continuously be sent to you, by more than just a few people. In the end, those are the ones you should think about implementing.
14. JANUARY 2013
Companies aren't some vague, metaphysical entity. Companies are made of people. If people suck, the company will suck. Hiring is one of the more stressful parts of building a startup. There are a couple of things to keep in mind:
- Hire only if it's necessary.
- CV's don't matter.
- Hire people smarter than yourself.
- Don't be afraid to fire.
Many businesses make the mistake of over-hiring. It kills profits, increases communication noise, and waters down the company's focus. Many entrepreneurs think that lots of employees equal a successful and „professional“ company. This is ridiculous. In reality, over-hiring can very easily lead your company down the drain. People tend to over-hire because they're afraid of expansion. They think the business will grow rapidly, and that it won't be sustainable without more employees. Others just want to look „big“ and „corporate-like“, thinking how hiring will somehow lead to progress. You should only hire when you realize the workload has been too heavy over a sustained period of time, and when you notice the level of quality slipping.
Anyone can make a decent CV these days, and mass-mail it to a hundred or more companies. These people don't care about your company, your vision, or your product. They don't care about landing your job, they just care about landing any job. These are not the people you want to recruit. People put all kinds of stuff in their CV's. Stuff that takes time to check. Everyone is an up-beat, team-playing, goal-oriented dream employee. It's a farce. Always read the cover letters and other materials first. In the end—you can read the CV as well, but take it with a grain of salt.
Hiring people smarter than yourself makes you smarter. Hiring people less capable than yourself makes you stagnate. There's a saying how A's hire A's, while B's hire C's. It means that successful people surround themselves with other successful people. They know very well that success is contagious. On the other hand, mediocre people tend to surround themselves with those less capable, so they wouldn’t feel insecure. Hiring exceptional people leads to faster progress, and exponentially faster creation of knowledge.
Be quick about firing people who don't fit in. Imagine you run a small creative studio of 10 people. Your employees understand what the company is all about, and they understand the vision behind the product. They are excited about the future, and work well together. Except for this one guy. He's not here because it's exciting, he doesn't think about the future. He's here to work eight hours a day—and collect his paycheck at the end of the month. He doesn't cooperate well with others, and nobody really gets him. Even if this person does an „ok“ job, you should still fire him. Why? Because he's a bad influence on his coworkers. He's bad for morale, and he doesn't fit in. This is the kind of person you hired because you thought his CV looked good. The longer you wait, the harder it gets. Be quick, be sincere, and do what you gotta do.
15. JANUARY 2013
Bootstrapping is the art of building a company without any financial help from the outside. It's usually done when the startup can't find a suitable investment. In some situations though, it might be wise to bootstrap it on purpose. One benefit of bootstrapping is the ability to keep absolute control over your business. Once you receive someone else’s money, you have to include them in decision-making process. Some investors don't understand the business they invested in sufficiently, and will base their decisions on experiences of the past. The other benefit of course, is you keeping a larger share of the company.
If you decide to bootstrap it, you need to be aware of certain things. First of all, you need to manage for cash flow, not profitability. Cash flow is your weakness when bootstrapping. It doesn't matter if you have a big contract signed, or the future looks bright. If the startup runs out of money—you're screwed, game over. You’ll need to secure constant streams of income flowing into the startup. This means that you need to start making money as soon as possible, which is good.
Many VC backed startups make a product with no clear monetization plan, because they don't have to. They keep developing and decide to think about making money in later stages. Some of them never make a dime, wasting their employee’s time, and leaving the investors empty handed.
In addition, to keep the cash flow reliable you will sometimes need to skip the deals that are profitable, but take a long time to collect.
15. JANUARY 2013
While bootstrapping might be the nobler path, nothing beats the good old venture capitalism. It's like bootstrapping on steroids! It turbo boosts your progress, with a small chance of total catastrophe—just to keep things exciting. There are a couple of sources of outside investments:
- Venture capital funds
- Business accelerators
- Angel investors
Venture capital funds or VC's offer private equity capital, which is provided as seed funding to high potential early stage companies. VC's usually offer the biggest amount of funding, but also take a big chunk out of your company. They also require one seat on the board of directors. In addition, their one and only goal is making money. This means you give up a lot of control over your company. Investors may interfere during product development, and if your company becomes successful, they will always push you towards an IPO. On the other hand, VC's usually have a very fat rolodex and a huge industry network.
Business accelerators are different from pure VC's. They don't just throw money at you and expect results, they actually help you achieve them. Accelerators offer much smaller amounts of funding than the hardcore VC's, but they do offer workspace, and most importantly—mentorship. In return, they take a very small chunk of your company, usually five to ten percent. Note that the office space and mentorship can be used for a pre-determined amount of time. Usually around three to six months. After that, you're on your own again.
Business Angels are individuals, often successful business people who offer funding in return for a piece of the startup. They usually offer a sizeable chunk of money that's somewhere in between of what you'd be getting from VC's and accelerators. They may or may not have useful contacts, although they mostly do. Good thing about angels is that your relationship with them can be way more personal than with other types of investors. They are just normal people who decided that they like you, and want to invest in you and your business.
These are the basic guidelines. In reality you can never know what you're getting yourself into. Always do thorough background research, think with your head, and decide with your gut.
15. JANUARY 2013
Dealing with lawyers
Business world is not exactly a playground. Things can go very wrong, very quickly. Before you start working with contracts or seek an investor, it's necessary to find a lawyer. Not any lawyer. A lawyer who has experience in your industry, and knows what he's doing. Many people make the mistake of hiring one of the lawyers they already know, or perhaps one of their family members or friends who's a lawyer. A divorce lawyer doesn't have the same set of skills as the lawyer who specializes in working with startups, or even better—tech startups. It's even possible that a lawyer with no experience in the field may actually make worse decisions than you would, or overlook an important fact.
Once you hire a good lawyer, you'll feel safer. Yeah, it costs some money to have him—but now you have someone who's got your back and who takes care of all the legal mumbo jumbo. This means that you can concentrate on your product, and your customers. Still, don't drag your lawyer along to every meeting. Lawyers can sometimes make people uncomfortable. Just be sure to have them on your side when discussing contracts, investments and other legal stuff. You can also try to make friends with your lawyer. You don't have to be best buddies forever, just get to know him a little bit. The best lawyer to have is the one that knows what you, and your business are all about. This is the one you’ll want to keep by your side for a long time.
Never talk to lawyers on the other side. Make it a rule: only lawyers talk to other lawyers. If another company's lawyer wants to talk to you—give him your lawyers phone number. This will sometimes be enough for them to back down. Never threaten people with lawyers unless it's absolutely necessary. And even then, think well before proceeding.
15. JANUARY 2013
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