NUGGETS OF ENTREPRENEURIAL KNOWLEDGE By Jay Jacobson , March 24, 2006 http://kinetic.org Sometimes friends ask me for entrepreneurial advice. They are typically somewhere in the pre-launch phase of creating a business and want to pick my brain about my experience starting companies. Interestingly, I rarely know exactly what to tell them. Every business is different, as is every scenario of creating one. I doubt there is a "one size fits all" model to entrepreneurial advice, and furthermore I believe that entrepreneurship really can not be taught - it must be experienced. My preferred way of helping friends who ask such questions is to sit down with them over coffee for a couple of hours and just have an interactive discussion about what they are doing and why they are doing it. I usually start the conversation by asking why they want to start a business and their answer is extremely telling about their expectations and what they consider entrepreneurship to be. Looking back on my thoughts and expectations of entrepreneurship when I started my first company, I now realize that I had no clue what I was doing. It is a good thing I am confident (and cocky) enough to not let that hold me back. Now after starting several companies, with several more to come, I recognize there is no magical advice anyone could have given me while I was starting my first business. I had to experience it all - success and failure alike - to gain the understanding I have today. Even after founding several ventures, I still have only scratched the surface of all there is to learn. For me, entrepreneurship is a life-long journey, learning (and sometimes screwing up) the whole way. Nonetheless, friends still ask for my advice. Okay - I will give it a shot. I think the best way for me to lay this out is to simply dump bits of knowledge as I think of them. Read on if you dare... Jay's nuggets of entrepreneurial knowledge, an evolving list, in no particular order: * Incorporate. There are many financial, legal, and operational reasons why sole proprietorships suck. If you are planning to have professional outside investors, you will probably want to be a standard C-Corporation. If your business will be self-funded, or FFF-funded, you probably want to be either an S-Corporation or an LLC. Here is another secret the lawyers do not want you to know: incorporating is easy. Really easy. Go to the corporation commission's web site for your state and do a little reading/digging. Many states have simple forms you can download online and easy checklists to follow for forming your business entity. Forming your first corporation will take a few hours while you figure out the process, but once you know the routine, creating other corporations in the future only takes a few minutes. * Get a financial advisor. This sounds very daunting and expensive, but it really is not, and the money you will save at tax time will be significant. For a baby startup company, this may only cost you $50/month during the startup phase. Once you get going and start generating some revenue, doing payroll, and such, it will be more but still reasonable from the right financial advisor. In any case, it is affordable and well worth it. Trust me, I learned the hard way. If you do not know where to turn to find a great CPA-type-person, that understands startups, is very smart, and is reasonably priced, let me know. I will gladly refer you to Marsha Livingston - the CPA I use. She is great. * Be self-funded. Unless you are starting a pharmaceutical company, an aerospace company, or something else equally heavily regulated, complex, and up-front cash intensive, you do not need VC money. No, your spanky shiny web application does not need $500 bubbillion of VC cash. I have raised many millions in VC money a couple of times before. Hooray... I can say, "I did it!" Whatever. From experience, I can tell you that I have been far happier with self-funded startups. * Being self-funded makes you very resource-constrained. At times, this sucks. However, it also forces you to be very creative and resourceful - and these traits are some of the most powerful aspects of a startup. It forces you to make your business create value and be successful. When you take VC money at the beginning stages, your business is forced to play grown up; you have to act like a big company overnight. You have to start hiring all kinds of people, implement policies and procedures, deal with red tape, and do all kinds of big company stuff that really hurts much of the agility and strengths of a small startup. Worst of all, after a while of playing "big company," your whole team starts believing that you really are a big company. You may look and act big, but the truth is that your company is playing big on a falsely elevated foundation. Big companies have big revenue, profits, a long-term customer base, and a track record. If your startup does not have these things, then you are not a big company. If you are thinking and acting like a big company, then the stability of your entire business is built on a falsely elevated platform (bought, not earned, with someone else's cash). If "playing big" is key to your business, then the underlying foundation of your business is very shaky and unstable at best. In the beginning, be self funded!!! * Be self-funded. Yes, this is a duplicate item. It is that important! * Have very clearly defined roles and responsibilities among the founders. Everybody on the founding team needs to know, and be comfortable with, the value created by every other person on the founding team. You all need to believe in each other and believe that the business needs everyone on that founding team to be successful. If the value added by any of the founders is questionable, this could blow up and make for a very bad situation later. Your founding team is working together to build a dream! You all better be feelin' the love among each other. * Do not act upon any advice, including mine, without being comfortable it is the right thing for you and your business. Just because someone is spewing advice, does not make it good advice. Likewise, just because advice is good for some business, does not automatically mean it is good advice for your business. * Question everything and break the rules. If you are like most people, you are starting your first business, but you have worked in companies for many years. Leave your big business garbage behind. Just because you worked at MegaCorp and they had everything signed in triplicate, that does not mean you need to do all that crap. Remember, this is a startup - act like one! Question everything. If you ever do anything because "that is how everyone else does it," or because "that is how it is always done," then that should be a big red flag for you. Stop and question what you are doing. Just because everyone else does it that way, you do not have to do it that way. Do whatever is best for your business - even if you have to break the rules of how something is normally done. No, this does not mean do something illegal. Do not be stupid. This just means to do the best thing for your business, even if that "best thing" is unconventional. * Do not have big, long meetings. Brainstorming sessions are cool and fun sometimes. However, big process meetings suck and are typically a total waste of time in any business, of any size. If you have to create a written "Agenda" for your meeting, please take the liberty of kicking your own ass. Everyone will want to do it anyway; save them the trouble. This is a startup! Quit screwing around with big company politics, process, and red tape. Make it happen! * Screw up, learn, then screw up differently. There is nothing wrong with making mistakes, as long as you never make the same mistake twice. You will screw up. Many, many times. Learn from it and carry on. * Do let let failure kill you. As an entrepreneur, you are very likely to fail. Even worse, you are likely to fail several times. Do not let those failures kill you or your spirit. Trust me, I know it is tough sometimes - I have been there. Keep your passion and your persistence and you will succeed. I am thankful for my failures and my successes because they both taught me very valuable lessons. * Do not over-plan, over-research, or over-develop. It is very easy to get caught up in planning to make everything perfect. News flash: it will never be perfect - deal with it. This is my way of saying release early, release often. * Be flexible with your business. Chances are that whatever you are currently envisioning your business to be is not exactly what your business will grow up to be. As your business is created and grows, you will learn new things, have new experiences, and find new perspectives. Do not be wishy-washy, but also be flexible enough to allow your business to grow and shape itself naturally. Flickr did not start life as a photo sharing service. The original vision for Edgeos was not a platform for private-labeled managed security services. * Focus. Do one primary thing and meet the market's need for that one thing better than everyone else. If you try to be everything to everyone, you will likely end up being nothing. Focus, focus, focus!!! It is hard to decide what your business is not. However, knowing what your business is not about is just as important as knowing the one primary thing your business is about. * The customer is not always right. You should always listen to your customers, and your business should grow to meet the needs of your market. However, that does not mean that every suggestion/request from every customer is always right. It is your job to keep your vision and focus true. At Edgeos, 99% of our system's features are a direct result of customer feedback and needs. However, we only implement a fraction of the total feature requests we receive. Do not try to be everything to everyone - focus! * Do not be in it for the money, but do not be financially stupid either. Sure, I like nice things, but I am not an entrepreneur for the money. If I just wanted cash, I could make a fat paycheck, with a lot less stress, at some big corporate gig. However, I am here because bringing ideas to life is my dharma. It is my passion. It is my life and it is what I am all about. I would rather be an entrepreneur and eat nothing but Ramen Noodles for the rest of my life than to have a "regular" job and feast. It is who I am. If you are going to be truly successful and happy, it should be who you are too. * If you build it, they will not come. Yeah, we have all heard the stories about some couple of geeks who put a business together in two months, launched it to the world, and a week later they magically had a million users and were rolling in the cash. Well, some people win the lottery too, but that does not make every lottery ticket an overnight gold mine. Your business will take an immense amount of work, from many disciplines, over the span of months (or more likely, years) to actually become successful. * Your idea is important, but execution really matters. You have to make it happen, and in a technology venture, that typically requires three primary skill sets: vision, engineering, and sales. Unfortunately, to be brutally honest, most people are not particularly talented at any of these three skills. It is a rare and exceptional quality for someone to be truly great at any of these three skills. Even worse, I have never known any individual person to be amazing at all three. Thus, the greatest challenge of building your core team is bringing together the vision, engineering, and sales talent. For the visionaries: you can generate fantastic ideas and solve grandiose problems, but if nobody ever does anything with your vision, then it is always theoretical. For the geeks: you can build uber-elite foo and write the most elegant code the world has ever seen, but if it has no real purpose and nobody ever knows it exists, then it is simply a toy. For the sales folks: you can fill a pipeline and score deals all day long, but if nobody is creating something for you to sell, then you are just pushing vaporous snake oil. * Have an advisor. Your other founders, friends, and family are great - you will rely on them heavily throughout the startup process. However, sometimes (likely more often than you will care to admit) you will be best served with advice or guidance from someone who is trusted and qualified, but who is not intimately involved with you or your business. Someone who can bring that outside perspective. Your friends and family will tell you what you want to hear, which may be radically different than what you need to hear. Your cofounders' viewpoints are clouded because they are right there in the trenches with you. An unbiased, trusted outside advisor can be immensely valuable. Yet not anyone is a good advisor. You will be best served by someone not too timid to tell you when you are full of shit. Your advisor should have "been there, done that" so they can give you a solid perspective based in real-world experiences. A great advisor is often terrible for your ego but wonderful for your business. * Take your business very seriously, but not yourself. Be confident in your actions and words, but do not be afraid to admit when you are wrong or have made a mistake. This is advice, not religion, so choose the pieces that are right for you and your business. Make it happen!