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Building on yesterday’s “Finding A Co-Founder” I want to identify a couple of common challenges to getting started with people you have had prior shared success with and offer some suggestions for how to manage them. I suggested the following approach:
Make a list of everyone you have successfully collaborated with in the last decade or two.
Recontact them and reconnect if you have lost touch.
If their background, expertise and interest are a fit with your needs: assume that it will take a month or two to come to a working arrangement and get started.
I want to focus on what can be involved in coming to a working arrangement and getting started.
One common challenge you can face as entrepreneur is to be “in the grip of your new idea” to the extent it is hard to appreciate other perspectives. Even before you talk to prospects (whose perspective is always valuable) you will normally talk with friends and former co-workers. They will offer three common suggestions:
There are potential drawbacks or challenges to implementing your idea that you need to address.
There are key details missing from your plan (e.g. step 2 in the “gnome underpants business model” ) that you often view as a minor detail but may in fact be a major stumbling block that require you to do more hard thinking.
Some other ideas may be better for you to work on given your strengths and experience. Sometimes, if they are also entrepreneurial, it will be their idea. More on this in a minute.
These responses are different from what you may hear from friends who may not appreciate your entrepreneurial aspirations and who will often offer these perspectives:
If you are employed: “This is the Great Recession, don’t even think about quitting your job.”
If you are not employed: “Don’t even think about starting a company, find a job until the economy improves.”
Note in both cases these are people you trust and who have your best interests at heart. The second group may even be right about your prospects for getting a startup off the group. But the second set is not a good place to recruit co-founders from. If they don’t have entrepreneurial aspirations, do not waste their time or yours trying to convince them to leave their job to start something with you.
The first group is much more promising. And in fact the primary stumbling block is often that they have ideas of their own that they want you to help them make real. There is a strong temptation to continue to talk to friends and former co-workers and then continue on to strangers in the hopes that someone will drop what they are working on and fully embrace your idea. I think this is a mistake.
Building trust takes months and requires ongoing mutual expectation setting and delivery. If you can start working with someone that you have worked with previously and enjoyed some success with you have substantially reduced the risk of a breakdown in team dynamics. I think it’s better to compromise and start working where you compare notes in a co-working model to can help generate forward progress. Agree to spend one or two days per week assisting the other person, or trade-off one day a week with two other people each to explore their current best idea.
This will allow you get better at customer discovery and customer validation. You will have a useful emotional distance on their ideas and will be able to help even if you ultimately go your separate ways. And they can help you, creating accountability for results and progress that is harder if you are working alone.
It’s likely your idea is going to evolve in response to what you learn while exploring it and you may be able to come to a blended idea in a month or two. Worst case you have made forward progress, you have someone you can bounce ideas off of and get their perspective, and working on their project may also give you a useful frame of reference for evaluating your own ideas.
“Stand in the place where you are
Your feet are going to be on the ground
Your head is there to move you around.”
What follow is based on both my direct experience and stories folks have shared at the Bootstrappers Breakfast over the last few years. Your co-founder can come from one of three groups
friend, current co-worker, former co-worker
friend of a friend or former co-worker, someone who trusts someone you trust
stranger / other
Make a list of everyone you have successfully collaborated with in the last decade or two.
Recontact them and reconnect if you have lost touch.
If their background, expertise and interest are a fit with your needs: assume that it will take a month or two to come to a working arrangement and get started.
If they are not a direct fit explain the kind of co-founder or co-founders you are looking for. If they can introduce you to someone that they can vouch for, and vouch for you to the other person, take some time and work on a small project or two.
Allow three to six months to come to a working relationship. Consider adding your fried or former co-worker as an equity compensated advisor.
If you meet a stranger at a Meetup, a Startup Week, a Bootstrapper breakfast or other event and do not have friend or former co-worker in common assume that
It will take working together on two or three projects of escalating complexity before you can have enough data to be able to ask them to help you create a company.
You will need to meet as many folks that they have worked with as possible with relevant knowledge for your startup. Create an informal advisory board (“kitchen cabinet”) that has one or two folks they know and one or two that you know.
You will need to allow three to nine months working on a few projects of escalating complexity before you can make a find decision to go forward with them.
In Poker a Jack is as good or better than about 3/4 (OK 76.92%) of the cards in the deck, losing only to Queen, King, and Ace. So a “Jack of all Trades” is good at many things. The full verse is
Scott Adams offered “Career Advice” in July of 2007:
But if you want something extraordinary, you have two paths:
Become the best at one specific thing.
Become very good (top 25%) at two or more things.
The first strategy is difficult to the point of near impossibility. Few people will ever play in the NBA or make a platinum album. I don’t recommend anyone even try.
The second strategy is fairly easy. Everyone has at least a few areas in which they could be in the top 25% with some effort.
I think this second strategy is a better one if you want to be an entrepreneur. It enables you to identify and take advantage of brokerage and translation opportunities: you can link folks who might not otherwise connect because of your ability to understand that even though they are working in different fields there is a mutually beneficial relationship possible.
There is a risk that skills and know how that you use infrequently can go stale or diminish in relative value depending upon how rapidly a particular field is advancing. The half-life or perishability of a skill is normally a function of the rate of innovation and any demographic changes in domain: how quickly does new knowledge emerge and old masters retire. Soft skills like how to run a meeting or how to manage tend to decay more slowly because people don’t change as much as technology. Adams suggests this in his closing advice:
At least one of the skills in your mixture should involve communication, either written or verbal. And it could be as simple as learning how to sell more effectively than 75% of the world. That’s one. Now add to that whatever your passion is, and you have two, because that’s the thing you’ll easily put enough energy into to reach the top 25%. If you have an aptitude for a third skill, perhaps business or public speaking, develop that too.
It sounds like generic advice, but you’d be hard pressed to find any successful person who didn’t have about three skills in the top 25%.
One more risk being a “Jack” is that the knowledge in any one field does not enable you to differentiate yourself. So you need to consider how the various cards you have are going to combine in a useful way that is also differentiating.
There may also be a “meta” domain that you are actually mastering by exploring a variety of its facets. E.g. if two fields are going to interact more strongly over time (think biology and computing) then knowledge of both fields is helpful. It’s also useful for fostering innovation in an arena you are new to if you can transplant working methods and technologies that are established in a field you another field into your new domain. This knowledge brokering can also be the basis for your next startup. For an interesting perspective on this see Andrew Hargadon’s “Firms as Knowledge Brokers.”
I think that there are better products, impossible products, and unthinkable products.
Better products follow an established trajectory in an industry. They are “15 minutes ahead” and the easiest to sell…for a while. Examples include:
Faster computers with larger memory
Cars with better gas mileage
Impossible products find a way to relax one or two constraints that designers of better products have taken as fixed. They are harder to sell, not so much because they are hard to understand but difficult to believe, prospects will ask you “What’s the catch?” Examples include:
ATM Machines replacing human tellers to dispense cash
Ethernet over twisted pair
Unthinkable products are typically developed by someone from outside the target industry or are the result of repurposing a product from another industry. Their developers were not handicapped by the mental roadblocks that come from following established practices and patterns in an industry. They can be extremely difficult to get prospects to understand–much less believe in–as they are almost always incompatible with current practices and infrastructure. But they can create an entirely new category of product. Examples include:
IDDQ testing in semiconductors
The Reebok Pump shoe
Henry Ford realizing that a meat packing plant’s “disassembly line” could be run backward to assemble a car.
What follows are some quotes from “What Makes Entrepreneurs Entrepreneurial.”
Effectual reasoning, however, does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with.
Effectual thinkers are like explorers setting out on voyages into uncharted waters.
All entrepreneurs begin with three categories of means
Who they are–their traits, tastes,and abilities;
What they know–their education, training, expertise, and experience
Whom they know–their social and professional networks.
In our “Idea to Revenue” Workshop we talk about three kinds of capital that startups begin with: intellectual, social, and financial. We don’t call out what she refers to as “human capital” or “who they are–their traits, tastes, and abilities” as a resource but instead encourage teams to “begin in phase two.” That is, to build on prior accomplishments and long term interests so that early customers view the startup as a continuation of earlier efforts and focus.
But I like this model of bootstrapping entrepreneurs as foragers: living off the land as hunter-gatherers until they can find a market to homestead. Bootstrappers have to start from where they are and search for opportunities. Pasteur advised that “Chance only favors the prepared mind” so you have to open yourself up to possibilities and be prepared to be surprised (which is another way of saying you have learned something new). Some more quotes from her paper:
Using these means, the entrepreneurs being to imagine and implement possible effects that can be created with them. Most often they start very small with the means that are closest at hand and move almost directly into action without elaborate planning.
Plans are made and unmade and revised and recast through action and interaction with others on a daily basis. Yet at any given moment, there is always a meaningful picture that keeps the team together, a compelling story that brings in more stakeholders and a continuing journey that maps uncharted territories.
Eventually certain of the emerging effects coalesce into clearly achievable and desirable goals–landmarks that point to a discernible path beginning to emerge from the wilderness
Seasons entrepreneurs, however, know that surprises are not deviations from the path. Instead they are the norm, the flora and fauna of the landscape, from which one learns to forge a path through the jungle. The unexpected is the stuff of entrepreneurial experience and transforming the unpredictable into the utterly mundane is the special domain of the expert entrepreneur.
One of the reasons that we run the Bootstrapper Breakfasts as 90 minute unconferences–where folks introduce themselves and put issues on the table they would like to discuss–is that it keeps everyone in an entrepreneurial frame of mind:
When you hear someone describe a challenge that they are facing, it gives you much better insight into their thinking and allows you to evaluate what they might be like to work with.
Often as not they are describing a common problem, or aspects of a common problem. Hearing their perspective just on the problem can give you new insights into how to solve it.
It’s good practice to learn how to ask for advice and insight. Entrepreneurs need to do a lot of that in the early market especially.
Explaining how you managed an issue or situation can deepen your understanding of you solution, it forces you to put it into terms others can use and understand. This is good practice for scaling up (e.g. adding your first employee).
Sarasvathy stresses the cooperative nature of entrepreneurship in the paper, a perspective that I share. Often an entrepreneur is attempting to obsolete an aspect of the status quo, but they have much less competition and much more opportunity for collaboration than is appreciated.
Markets are stable configurations of critical masses of stakeholders, who come together to transform the outputs of human imagination into the forging and fulfillment of human aspirations through economic means.
Effectual reasoning may not necessarily to increase the probability of success of new enterprises, but it reduces the costs of failure by enabling the failure to occur earlier and at lower levels of investment.
Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in a yet-to-be-made future that can substantially be shaped by human action; and they realize that to the extent that this human action can control the future, they need not expend energies trying to predict it. In fact, to the extent that the future is shaped by human action, it is not much use trying to predict it–it is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence.
She highlights three key differences between effectual reasoning and traditional startup management models:
Risk taking
Traditional: expected return, work the plan to deliver results to your investors (“Ready Aim Fire” can become “Aim–not big enough–Aim–not big-enough–Aim…”).
Effectual: affordable loss, make many small mistakes as early and cheaply as possible to speed learning (“Ready Fire Steer“)
Focus:
Traditional: competition
Effectual: strategic partnership (especially with early customers)
Value Creation
Traditional: rely on pre-existing knowledge to aim for a known market you can dominate and exploit
Effectual: leverage contingencies; create opportunities as you map a new market
She goes into some detail on the “affordable loss principle” and offers extracts from an interview with an expert entrepreneur’s approach to a new market:
While managers are taught to analyze the market and choose target segments with the highest potential return, entrepreneurs tend to find ways to reach the market with minimum expenditure of resources such as time, effort, and money. In the extreme case, the affordable loss principle translates into the zero resources to market principle. Several of the expert entrepreneurs I studied insisted that they would not do any traditional market research, but would take the product to the nearest possible potential customer even before it was built. To quote but one of them, “I think I’d start by just… going… instead of asking all the questions I’d go and say.. try and make some sale. I’d make some… just judgments about where I was going — get me and my buddies — or I would go out and start selling. I’d learn a lot you know..which people.. what were the obstacles.. what were the questions.. which prices work better and just DO it. Just try to take it out and sell it. Even before I have the machine. I’d just go try to sell it. Even before I started production. So my market research would actually be hands on actual selling. Hard work, but I think much better than trying to do market research”.
In finding the first customer within their immediate vicinity, whether within their geographic vicinity, within their social network, or within their area of professional expertise, entrepreneurs do not tie themselves to any theorized or pre-conceived “market” or strategic universe for their idea. Instead, they open themselves to surprises as to which market or markets they will eventually end up building their business in or even which new markets they will end up creating.
This is also an approach that favors older entrepreneurs to the extent that they have larger social networks (based on more shared work experience with more people) and deeper professional expertise. The one caveat is that they have to be open to new possibilities and not be blinded by what they “know” to be true in the face of new information.
This 2001 paper offers another perspective on bootstrapping entrepreneurship that is independently derived and predates “Four Steps to the Epiphany (2003)”, “Blue Ocean Strategy(2005)”, and the “Sales Learning Curve (2004).” But all four are clearly addressing different aspects of the same core paradigm that takes a scientific or hypothesis driven approach to new products and new markets.
I will leave with two final quotes from the paper which highlights the value of establishing enduring relationships.
Expert entrepreneurs [...] are actually in the business of creating the future, which entails having to work together with a wide variety of people over long periods of time. [They fill their future] with enduring human relationships that outlive failures and create successes over time
This is largely ignored in our entrepreneurship curricula which tend to focus on market research, business planning, new venture financing and legal issues. As far as I know no entrepreneurship programs offer courses in creating and managing lasting relationships or stable stakeholder networks, nor on failure management.
Just a quick reminder, the early bird rate ends next week for our Jan 12, 2010 Idea to Revenue workshop in Redwood Shores, CA. If you are in formation or the early days of your startup this is a good opportunity to spend four hours on your business with your team members. We help you ask each other the hard questions so you can leave with a one page plan for your next steps. This will sell out, register now.
He posts on Hacker News from time to time and in response to a question “Should Your Startup Have an Advisory Board” posted a very cogent set of tips that have yet to make it to his website. So that his answer is not lost to bit rot I am including it here.
I have worked extensively with startups in Silicon Valley since 1984 and have seen every shade of advisory board, ranging from those set up for pure window dressing to those used extensively by founders for insightful continuing advice.
The latter usually arise from pre-existing relationships between one or more of the founders and the advisors. Normally, the advisor is someone who wants to assist the founders and whom the founders accordingly want to reward by small equity grants via the advisory director role. These types of advisory boards, in my experience, tend to be of significant value to early-stage startups and are well worth the small equity grants involved (which, by the way, tend on average to be more like .1%/yr of service rather than the higher number suggested by the author of this piece). The informal nature of the relationship also avoids many of the hassles associated with trying to have such an advisory board meet from time to time in some formal manner. In essence, what you have with such boards is a healthy working relationship from which all parties benefit.
The “window dressing” variety of advisory board is often as phony as an undersized glass eye that spins randomly with every blink. This often involves the so-called industry luminaries used to make the startup look much more impressive than it really is. In essence, such advisors hire out their names (and, yes, they will insist upon larger equity grants and often for some form of cash compensation as well, as for example for every meeting attended). While one can never say categorically that such advisors do not add value to a startup, their primary function is to add name-value and hence the value of their contributions apart from name value tends to be limited. There are exceptions but, in my experience, not many. In general, these types of advisors are a clear mis-match for most early-stage startups, though they often help later-stage ones needing “company profile” dressing for IPO, etc.
By the way, founders still occasionally confuse the role of advisory director with that of a board director. There is no connection whatever between the two roles. The former is basically an outside consultant only and has no management-level authority; the latter, of course, has tremendous management authority (and corresponding liability risks as well, which the advisory director does not).
Here are some blog posts where I talk about the value and appropriate use of an advisory board or kitchen cabinet:
Nov-23-2008 “Unfamiliar Pain”
If you don’t have a kitchen cabinet or board of advisers that you are accountable to, I would encourage you to create some mechanism for independent outside advice from folks with relevant experience. I have several other independent consultants that I compare notes with, we also take turns kicking each other in the ass encouraging each other to make hard decisions and do the things we know we need to do that are getting neglected. We having a meeting with all of our partners together for the first time in early December. I hope to use this as both a joint planning and joint accountability mechanism.
Many entrepreneurs planning their first software startup get stuck on funding and ownership issues. Here are some simple rules of thumb that may help you reframe an issue:
Revenue, especially break even revenue, is never dilutive of your ownership.
The right co-founders, while dilutive, substantially increase your chances of success: they give you a smaller piece of a much more valuable pie.
Paying customers are real proof that there is demand for your product. Getting funded is proof that an investor thinks there will be demand for your product.
A software startup in 2009 normally doesn’t need more than 10-25K to get started, if the founding team can provide the bulk of the labor to develop and market the first version of the product.
If the founding team cannot provide the bulk of the labor to develop and market the first product, think about adding co-founders not seeking funding.
If you need a salary from day one of your software startup don’t seek investment. Instead keep working at your day job, save your money, lower your burn rate, and work on your startup part time. This is hard.
Your most important investors are your spouse, friends, and family who will provide you with emotional support on the entrepreneurial roller coaster.
Professional investors don’t want control of your business, they want a return on their investment.
I think a bootstrapper’s true scarce resource is time. Determining how to be most effective with how you spend your time is more important than spending too many cycles on trying to save nickels. As a side effect of cutting out ineffective activities you will tend to cut unnecessary expenses.
“Lost wealth may be replaced by industry,
lost knowledge by study,
lost health by temperance or medicine,
but lost time is gone forever.” Samuel Smiles