Dharmesh Shah’s Pithy Thoughts For Startup Co-Founders

Written by Sean Murphy. Posted in Rules of Thumb, skmurphy, Startups

Dharmesh Shah wrote a great post on his On Startups blog where he outlined 17 pithy suggestions for software startup co-founders. While I have picked what I think are the best half-dozen, preserving his original numbers. I would encourage you to read the full article.

1. Seek transparency and understanding with your partners early. Issues get harder as time passes

Here are some good rules of thumb I have picked up over the years on transparency:

  • Don’t have one person both write and sign a check. Always have one founder sign any check that represents a payment to another founder (never pay yourself company funds without having written authorization from another founder).
  • Use something simple like Quickbooks or Quickbooks on-line, take at least 30 minutes once a month to review financials.
  • One founder has to be CEO, agreement is always preferable to fiat, but deadlock never succeeds.
  • Never do a 50-50 split (remember that Packard had 60% and Hewlett 40%), if you want an even split select a tie-breaker board member and do 49-49-2 split so that any two represent a majority. Pick someone you both trust and respect. With three or more founders take care to arrange the equity distribution to avoid the possibility for deadlock, add a tie-breaker if needed.

4. If you’re changing direction often, worry a little. If you’re changing people often, worry a lot.

Charles Caleb Colton observed that “A windmill is eternally at work to accomplish one end, although it shifts with every variation of the weathercock, and assumes ten different positions in a day.” If you are changing direction tactically that’s probably inevitable. But if you are changing some fundamental assumptions about your core competencies or the marketplace then you should be very explicit with yourself and the team that you’ve learned something. If you can’t build or retain a core team you may have a problem with your mission, your traction, or your ability to lead.

8. Until you are profitable, time is working against you. Once you are profitable, time is on your side.

Focus as much on the spend side–your “burn rate“–as you do on generating revenue. Expense growth should lag revenue growth. Revenue is important but bona fide references precede any significant revenue growth, and your early customers end up paying less for a product that almost works for a variety of reasons. It’s more important to have them pay something and turn them into a long term satisfied reference, than to focus purely on the revenue side.

11. Force yourself to write, as it will force you to think.

At different times I’ve kept a journal, an in-house blog, and written status reports to an informal set of advisors (or “kitchen cabinet“). For SKMurphy work, I find that my common development paths for written content is to answer someone in a e-mail, because it’s easiest for me to write with a specific audience in mind, and then re-purpose that into a blog entry if I find myself going back a second time and using it. If I send the URL for the post more than once or twice I think about either expanding the post into an article or aggregating a couple of posts into an article.

16. You choose your destiny, because you choose your team.

Hiring (and firing) decisions are the most difficult. In a small firm everyone is steering so be careful who else you select to sit in the pilot house. Your team aggregates social capital, intellectual capital, and normally a small amount of financial capital if you are bootstrapping. Collective focus and effective collective action translates this capital into results: put another way, if the results of teamwork are less than the sum of the individual efforts you are either not focused and pulling in the same direction or one or more of your team is doing negative work.

17. Be who you are. Do what you love. Join people you like.

This should be #1 on his list. It applies to whatever path you find yourself on.

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